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New Tax Law Could Give Cooperatives Advantage Over Private Grain Companies

NASHVILLE, Tenn. (DTN) — The law of unintended consequences has followed close on the heels of the new tax law, and it is coming down on private grain companies.

Language added to the tax law in December to help boost farmer cooperatives could end up causing famers to deliver their grain and other commodities largely to cooperatives, at the expense of private grain companies, in order to get a larger deduction on their income.

Staff at Iowa State University’s Center for Agricultural Law and Taxation said they have been getting flooded with emails over the past week about the treatment and effects of qualified cooperative dividends. In a column, Kristine Tidgren, assistant director of the center, said the new provision will affect farmers who market commodities through cooperatives in which they are a member versus selling commodities to non-cooperatives.

The provision in the law allows farmers to take advantage of the new 20% deduction on all qualified business income, like every other smaller business. But on top of that, farmers can deduct, “up to the amount of their taxable income (not including capital gain income) an amount equal to 20% of their ‘qualified cooperative dividends.’”

In another note, the way the language is written in the law, this extra tax deduction only applies to agricultural cooperatives.

The deduction for qualified cooperative dividends allows a taxpayer to deduct the lesser of “20% of the aggregate amount of the qualified cooperative dividends of the taxpayer for the taxable year, or, taxable income minus net capital gain.”

In drawing a comparison about the differences between having the cooperative deduction and not having the cooperative deduction, Iowa State compared scenarios of a farmer who had $300,000 in grain sales and $180,000 in expenses, leading to net Schedule F income of $120,000. With the regular Section 199A deduction, the farmer’s taxable income for the year is $86,400. Applying the cooperative benefit, taxable income drops to $48,000.

“A plain reading of the text of the new law would suggest that it potentially provides a significantly larger Section 199A deduction to some member farmers marketing their products through a cooperative than to farmers selling to a non-cooperative. But it is too early to tell if this interpretation will be implemented,” Tidgren wrote.

As Paul Neiffer, a principal at CliftonLarsonAllen explained, to receive the qualified cooperative dividend deduction, a farmer must be a patron of the cooperative and sell his or her grain there.

As Neiffer explains, a simple way to look at it is for a farmer to take their tax bracket and multiply it by 0.20. If a farmer is in the 35% tax bracket, that comes to 7% savings.

“It is a clear potential advantage,” Neiffer said. “I always want to highlight the word ‘potential’ because the key is they have got to have taxable income. If they don’t have taxable income, this deduction is worth absolutely nothing.”

Another question, Neiffer and Tidgren pointed out, is some of the benefits could change depending on how the IRS offers guidance or a rule on how taxpayers should treat the provision.

Another accountant who spoke to DTN on background said the provision could cause private grain companies to create separate cooperatives for grain delivery. Ethanol plants could also end up getting grain from cooperatives rather than buying more direct from farmers. It was suggested cooperatives could end up building more storage to hold more grain. However, the benefits of this tax provision right now are scheduled to sunset in 2025. “Who wants to make a major investment in infrastructure for a temporary tax benefit?” the accountant said.

If a farmer is not a cooperative patron and selling to the cooperative, he or she will still likely qualify for the regular Section 199A deduction of 20% of net farm income.

The scenarios being run on these tax savings come without any IRS rules. Once those are written, proposed and finalized, the situation and overall benefit could change.

The qualified cooperative dividend was added late to the tax bill by Sen. John Hoeven, R-N.D., and Sen. John Thune, R-S.D., who were trying to stave off a large tax increase for farmers who had relied on the prior Section 199 Domestic Production Activities Deduction. The National Council of Farmer Cooperatives had pushed for a change, arguing farmers who sell to cooperatives risked a $2 billion annual tax break if it went away and was not replaced with similar language. Chuck Conner, president and CEO of National Council of Farmer Cooperatives, warned against making changes to the new tax break that could end up raising taxes on farmers.

“Section 199A was included in the tax reform package because Congress realized that eliminating the Domestic Production Activities Deduction, also known as DPAD, without these provisions would have resulted in a tax increase on farmers across the country,” Conner said. “NCFC and our members supported retaining DPAD, with its track record of promoting growth in rural America, for agriculture; policy makers ultimately decided that they preferred to replace it with a deduction that fit under the new structures they created in the tax bill. It should also be noted that Section 199A sunsets in 2025 while other provisions for non-cooperative business, such as a 40% cut in the corporate tax rate from 35% to 21%, are permanent.

“Looking forward, we believe that Congress should avoid any action that would raise taxes on farmers, especially at a time of continued low commodity prices,” Conner said.

The National Grain and Feed Association, which represents both private grain companies and cooperative firms in Washington, declined a request to comment on the tax provision.

Leaders from the American Farm Bureau Federation told DTN this week they had just learned about the implications of the tax change and would review the issue more when leadership returns to Washington from the group’s annual meeting in Nashville.

Kami Capener, a spokeswoman for Sen. Hoeven, told DTN that the goal was to prevent cooperatives from being “unfairly treated” by the loss of the domestic-production deduction. “We are continuing to work with Sen. Thune and stakeholders to address any unintended impacts,” she said.

The problem with making a technical correction to the tax law is it now would require 60 votes in the Senate to make a change in the law. Much like Republicans refused to help Democrats make changes to the Affordable Care Act, Democrats may be unwilling to help Republicans make similar changes in the new tax law.

More details on the Section 199A changes can be found at: http://bit.ly/…and at http://bit.ly/…

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IRS paid $20 million to private firms that collected $6.7 million in tax debts

When Treasury Secretary Steven Mnuchin was asked at his confirmation hearing what he thought about using private companies to collect money owed to the government, he replied that it “seems like a very obvious thing to do.”

It may have been obvious, but it certainly was not economical.

Private debt collectors cost the IRS $20 million in the past fiscal year but brought in only $6.7 million in back taxes, the agency’s taxpayer advocate reported this past week. That was less than 1 percent of the amount assigned for collection.

What’s more, private contractors in some cases were paid 25 percent commissions on collections that the IRS made without their help, according to the annual report by Nina Olson, who heads the Taxpayer Advocate Service, an independent office within the IRS.

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In addition, Olson reiterated previously expressed worries that the expedited process of approving organizations’ tax-exempt status was resulting in rubber-stamp approvals of groups that had not established their qualifications. She cited an error rate of 46 percent in a sampling last year.

The streamlined process, for charities with assets under $250,000, was partly a response to a furor over the agency’s intensive scrutiny of certain political groups, including some associated with the tea-party movement. Flaws in the new process, the report said, can undermine public trust in the charitable sector.

Sarah Allen, an IRS spokeswoman, said the agency’s leaders would review the taxpayer advocate’s proposals.

Rep. Kevin Brady, R-Texas, the chairman of the House Ways and Means Committee, who helped organize the tax-revision efforts, has said he plans to focus on reforming the IRS this year. Olson’s office issued a new publication that includes its top 50 legislative recommendations.

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Mistry’s counsel failed to prove violation of law: Tata Sons to NCLT

Tata Sons told the National Company Law Tribunal’s (NCLT’s) Mumbai bench on Thursday that the counsel representing the Mistry family’s investment firms had failed to prove any of their pleas violated the law. Abhishek Manu Singhvi, who appeared on behalf of Tata Sons, was responding to the allegations of oppression and mismanagement submitted by Mistry’s counsel. The two sides have been locked in a bitter legal dispute since December 2016, following the removal of Cyrus Mistry as the chairman of Tata Sons. The only exception he added was Article 75, which pertained to compulsory transfer of shares owned by the Mistry family.

Singhvi said none of the other articles cited by the counsel of the petitioners was unique or unheard of. Furthermore, all the shareholders agreed on the above articles over 51 years ago, he said.

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Betting law not sufficient mechanism to address gambling craze in Kenya

The going into effect of the law that taxes betting revenues at the rate of 35 per cent is a commendable step towards reining in the betting companies, but it does not address the mechanisms through which the populace is becoming ensnared to become gamblers.

These mechanisms revolve around the marketing and promotion of betting as a productive enterprise. We are daily inundated with advertisements on our TVs that promise us millions. We are seduced to sign up with one betting house or other as a sure bet to the rich kingdom. Our TVs and radios have glamourised gambling.

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The advertisements employ a number of strategies, ranging from the clownish, to the serene, many visual and audio, some merely audio. All in all, the gambling adverts appeal to our sense of desire to make a lot of money and promise that this is attainable instantly.

Examples of those who have made winnings are provided to drive the point home that we too can join the elite club of millionaires. The advertisements appeal to a wide audience by showing ordinary people – for example folk selling sugarcane – exuberant after winning bets.

Through this device, betting companies seek to ensnare as many people as possible to become gamblers by showing that ordinary people are winning.

These strategies were for many years employed by tobacco companies which lured us with promises of a high class life with beautiful women and top of the range cars.

The ruses

Advertisers do not use the above techniques innocently: they know they will ensnare their victims. French philosopher Michel Foucalt warns us that power is most potent when it is internalised.

We have now internalised the notion that we can make millions instantly with little effort and are acting on this belief.

What they do not tell us is that once snared, we stay snared. Put simply, gambling is addictive.

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Many will abandon what they see as the hard slog towards wealth creation for the quicker and easier one of placing a bet with a few shillings via Mpesa and boom! The millions arrive in the account.

Gambling has been made easy with the arrival of internet platforms and internet connectivity and especially smartphones. Throw in the hourly blasts on our TVs, then we can understand why Kenya is ranked third to Nigeria and South Africa in terms of gambling market size.

The advertisements do not tell us how many people betted and never won anything. They do not tell us the number of people who have lost all their life savings while seeking these quick millions.

Further, they do not tell us how many people have abandoned their honest pursuits in search of easy riches, and ended up worse for it. A common adage in gambling is that the house always wins.

This fact is never captured in the advertisements. I know of a case where a guy lost Sh90,000, being the entire family savings, on a bet. The wife did not know till much later.

Rein in practice

There has come time to control the naked ensnaring of Kenyans into gambling. In doing so, we can draw lessons from mechanisms to control tobacco companies’ glamourizing of smoking.

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Spurred by concerns about the addictive nature of tobacco and its health effects, the Kenyan Government passed the Tobacco Control Act 2007.

This Act prohibits most forms of advertising and promotion of tobacco products. Formerly glitzy packaging of tobacco packages has been mostly replaced by health warnings in English and Kiswahili of the effects of tobacco.

Beyond the controls on promotion of tobacco promotion, the Act requires the State to educate the public on the “the health consequences, addictive nature and mortal threat posed by tobacco consumption…”

So just like what happened regarding tobacco, it is time promotion of gambling was severally curtailed and betting companies required to provide a caveat to their advertisements, namely, that gambling is addictive; and that you could lose your shirt while gambling.

Further, the State should put in place mechanisms, including changes to the curriculum, to comprehensively educate the public about the dangers posed by gambling and the virtues of disciplined work.

Gambling companies can choose to act voluntarily. But they can also be forced by legislation. Just like in the case of tobacco, these companies will fight back.

They will for example blackmail the public by withholding sponsorships of sports events. But the public good must prevail.

Government attempts to regulate this industry through high taxation are commendable, but these can only go so far. It is time to extend these efforts to regulating the kind of mechanisms through which we become ensnared to become gamblers.

Dr Nyamori is Associate Professor of Accounting, Abu Dhabi [email protected]

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House renews surveillance law after Trump posts differing tweets

Jan. 11 (UPI) — The U.S. House on Thursday passed legislation reauthorizing a surveillance act after President Donald Trump first criticized the bill, and then backed it.

The House approved the legislation 256-164 with support from Democrats and Republican leadership to extend the program for six years. It now goes to the Senate.

Two postings Thursday on Twitter by Trump came before the House was scheduled to vote later in the day on making changes to reauthorization of the Foreign Intelligence Surveillance Act.

American firms, including Google and AT&T, are now required to turn over information to authorities without a warrant turn over private emails and other messages of Americans linked to foreigners’ communications in counterterror and espionage cases. A proposed amendment to Section 702 to require authorities to obtain court warrants failed 233-183 with support from libertarians and privacy advocates.

White House press secretary Sarah Huckabee Sanders on Wednesday night issued a statement asking lawmakers to vote against the legislation with the changes.

But in his first tweet Thursday, Trump wrote: “House votes on controversial FISA ACT today. This is the act that may have been used, with the help of the discredited and phony Dossier, to so badly surveil and abuse the Trump Campaign by the previous administration and others?”

The dossier examines ties between Russia and Trump and his aides.

The tweet was posted shortly after Fox News legal analyst Andrew Napolitano said, “Mr. President, this is not the way to go. Spying is valid to find the foreign agents among us. But it’s got to be based on suspicion and not an area code.” He said Trump’s “woes” began with surveillance.

Hours later, the president appeared to back off supporting the limits by writing: “With that being said, I have personally directed the fix to the unmasking process since taking office and today’s vote is about foreign surveillance of foreign bad guys on foreign land. We need it! Get smart!”

House Speaker Paul Ryan, R-Wis., and Trump spoke by phone between the president’s two tweets, a senior Republican congressional aide told The New York Times.

“I think [House Republicans] just needed more clarification. Was there support? What was the concern? What were his issues?” said House Republican Study Committee Chairman Mark Walker of North Carolina told Politico. “For members who were somewhat undecided or lean-no or lean-yes, if the president comes in and weighs in on something, I think that is impactful. And that’s why they wanted to make sure that at the end of the day, or at the end of this conversation, that he is supportive overall of this bill.”

Trump’s original tweet enraged Democrats who have been working with moderate Republicans to reauthorize the legislation.

Sen. Mark Warner of Virginia, the top Democrat on the Senate’s intelligence committee, criticized the president.

“This is irresponsible, untrue, and frankly it endangers our national security,” Warner tweeted. “FISA is something the President should have known about long before he turned on Fox this morning.”

House Democratic leader Nancy Pelosi of California called on Ryan to pull the bill from the floor after Trump’s first tweet, an aide told The Hill and The New York Times.

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Agriculture Firms Say New U.S. Tax Law Gives Significant Advantage to Cooperatives

The new U.S. tax law has placed Rick Tronson, a North Dakota grain-company operator, in a precarious position by unexpectedly bestowing big benefits on his main competitors.

A provision inserted into the tax code during Senate and House negotiations in December gave farmers more lucrative deductions when they sell agricultural products directly to the farm cooperatives he competes against rather than to businesses like his own.

Mr….

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Foreign law firms case: Will step in if BCI fails to frame rules, say Centre

New Delhi: The Central government on Wednesday told the Supreme Court that the Bar Council of India (BCI) would frame rules to open up the legal sector to foreign lawyers and law firms, failing which it would, and urged the court to quickly wrap up two cases pending before it on the issue.

“The government wants to work with the Bar Council of India. It must frame the rules, or the government will step in and frame it. It is not that the government lacks the jurisdiction to do so,” Additional Solicitor General Maninder Singh told a bench, comprising Justices Adarsh Kumar Goel and UU Lalit.

The BCI, on its part, said it was willing to frame rules to allow foreign firms on the basis of reciprocity, but did not want to give foreign arbitrators a free run in the country.

The Council also expressed its reservations on allowing foreign law firms to open liaison offices in India, currently barred by the Bombay High Court. Two cases, challenging a Bombay High Court order and another a Madras High Court order, have been pending for over five years.

The government had, in July 2017, filed an early hearing petition urging the court to wrap up these cases quickly.

The Madras High Court had, in 2012, allowed foreign lawyers to fly in and out of the country to advise their clients.

This was challenged by a lawyer. The Bombay High Court, in another ruling in 2009, disallowed foreign firms from setting up liaison offices in India with RBI permission.

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In response to the government plea for an early hearing, the two-judge bench hearing the case began hearing opposing arguments on both sides. Appearing for the BCI, senior advocate CU Singh said the BCI only wants the rules to take care of the recipro-city issue by other countries so that they extend similar facilities to Indian lawyers. It was also against any lawyer functioning in India outside the regulatory regime. “They can’t have a carte blanche, do what they wish,” CU Singh argued. He was, however, averse to foreign arbitrators being allowed to freely take part in Indian arbitration.

“Arbitration is also part of legal practice,” he contended, suggesting that arbitration must also be subject to BCI regulations. He said the BCI was willing to work things out, but the commerce ministry had brought in a foreign body to draft a law to open up the sector bypassing it. “That is not acceptable.” The BCI is the top regulato ry body regulating both educational standards and legal practices in India. It also takes disciplinary action against errant lawyers and faulty educational standards. His suggestion that arbitration be subjected to BCI oversight was vehemently opposed by senior advocate Dushyant Dave who appeared for the London Council of Arbitration.

“This will finish off arbitration in India and act as a dampener on investment,” he argued. “No one will sign contracts which have India as the seat of arbitration or under Indian laws,” he cautioned. “We, Indian lawyers, appear in every forum around the world. We don’t have to seek any permission,” he contended.

Dave suggested that the court appoint senior advocate Fali S Nariman as the amicus to help out the court in deciding whether arbitration should be subject to BCI regulations or not.

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Bellingham law firms opens second location in Mount Vernon

by ehamann
Filed on 10. Jan, 2018 in Business Briefs, Contents

Barron Smith Daugert, PLLC, a Bellingham law firm, has opened a second office in Skagit County. The law firm serves clients in the areas of business, real estate, employment, estate planning and probate. The new office is located at 825 Cleveland Ave., Mount Vernon.

For more information about the firm, visit www.barronsmithlaw.com.


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