News Update
August 29, 2011
Income Tax Considerations for
Drought-related Sales of Livestock
Drought-related Sales of Livestock
Ranchers across Texas have been forced to sell cattle at a historic rate, and income tax implications are a concern, according to Texas AgriLife Extension Service economists.
“The historic drought has forced many more cows than normal to be sold throughout Texas,” said David Anderson, AgriLife Extension livestock economist. “Of the $5.2 billion in agricultural losses to date, $2.06 billion has come from our livestock industry, as ranchers have sold off cattle due to lack of forage and escalating supplemental feed expenses. This has created several financial management issues for cattle producers to consider.”
Producers are advised to consult their financial professional for advice that best fits their operation and business plan, said Jose Pena, AgriLife Extension economist.
“Everybody’s situation is different, and it may not be best practice to do what your neighbor does,” he said. Pena said there are things to consider looking ahead for the 2011 tax year.
“If weather-related sales cause a producer to sell livestock, the gain on sale can be postponed,” Pena said. “There are two different tax treatments, both of which apply only to weather-related sales in excess of normal business practice.”
The first treatment applies to draft, breeding or dairy animals that will be replaced within a two-year period, Pena said. The second applies to all livestock and allows a one-year postponement of the reporting of the sales proceeds.
“If livestock (other than poultry) held for any length of time for draft, breeding, or dairy purposes is sold because of weather-related conditions, the gain realized on the sale does not have to be recognized if the proceeds are used to purchase replacement livestock within two years of the end of the tax year of the sale,” Pena said.
The replacement livestock must be used for the same purpose as the livestock that was sold, he said. For example, dairy cows must be replaced with dairy cows. The taxpayer must show that the weather-related conditions caused the sale of more livestock than would have been sold without the drought conditions.
“For example, if the farmer normally sells one-fifth of the herd each year, only the sales in excess of one-fifth will qualify for this provision,” he said. “There is no requirement that the weather-related conditions cause an area to be declared a disaster area by the federal government.”
Pena said the election to defer the recognition of gain is made by not reporting the deferred gain on the tax return.
“A statement should be attached to the tax return indicating the existence of the weather-related conditions, the computation of the amount of the gain realized on the sale or exchange, the number and kind of livestock sold or exchanged and the number of livestock each kind that would have been sold or exchanged under the usual business practice in the absence of the weather-related condition.”
Another scenario involves sales of livestock inventory. Pena said if inventory of livestock (calves, stockers, etc.) are sold because of weather-related conditions, the taxpayer may postpone reporting of the income for one year.
“To qualify for this election, the taxpayer must show that his/her principal business is from farming or ranching; use the cash method of accounting; show that the livestock would normally have been sold in a subsequent year; and that the sale of livestock was caused by weather conditions from an area (county declaration or contiguous county) officially declared as a disaster area. The sale can take place before or after an area is declared a disaster area as long as the same disaster caused the sale.”
The amount of income that can be postponed is the income generated from the excess amount of livestock sold as a result of weather-related causes, Pena said.
“For example, if a rancher sells 150 head of livestock due to weather-related causes instead of a usual average of 100 head, the income generated from the sale of the extra 50 head may be postponed to the following year,” he said.
New Coalition Seeks To Rally Food Manufacturers
and Importers Against New FDA Fees
According to Benjamin England, founder and CEO of FDAImports.com, food importers and foreign manufacturers are in for a surprise starting Oct. 1, 2011, when they receive a bill from FDA for re-inspecting their food shipments. When Congress passed the Food Safety Modernization Act, no one expected the little provision tucked within it requiring FDA to collect a fee for the costs associated with re-inspecting imported foods would be expanded so broadly by FDA. FDA has interpreted this requirement expansively and explained its thinking in a little-publicized Aug. 1 Federal Register notice announcing the new fees associated with imported food shipments.
England observed the Federal Register notice and is currently launching a coalition of interested manufacturers and food importers to challenge FDA’s interpretation in this regard.
According to England, these fees will cripple the food industry, which will have to pass the costs on to consumers. In essence, this is an imported food tax masquerading as a fee. People are just starting to hear about this new tax even though there is barely a before it is to go into effect.
When FDA issued the Federal Register notice, it invited comments about the re-inspection fees, which it will accept until Oct. 31. Noticeably, the fees will go into effect 30 days before the comment period has closed.
England is working with food industry members to officially comment on these fees and explain their heavy burden on importers’ businesses. Food importers and manufacturers that will be adversely affected by FDA’s new re-examination fee structure should visit FDAImports.com’s coalition and comments page to learn more about the coalition’s goals.
OCA Young Cattlemen’s Conference a Learning Experience
The 2011 Ohio Cattlemen’s Foundation Young Cattlemen’s Conference (YCC) was hosted Aug. 11-13. This year’s three-day leadership development program, made possible by Pioneer, the Ohio Soybean Council, Farm Credit Services and Monsanto, brought together 14 young cattlemen and women from across the state to develop future spokespeople for the beef industry.
The conference kicked off Thursday evening at Hoggy’s in Columbus. The dinner was made possible by event sponsors and the Ohio Cattlemen’s Association. Participants were also witness to the 2011 Ohio State Fair Commercial Cattle Show carcass awards presentation.
Guest speaker Barb Wilkinson, executive director of governance and leadership development of the National Cattlemen’s Beef Association (NCBA), followed the awards presentation with a presentation challenging young producers to get involved in the opportunities of today’s beef industry.
Friday morning, delegates participated in a spokesperson training program led by Daren Williams, executive director of communications for NCBA. Williams led participants through mock media interviews and provided them with the tools necessary to effectively share their story with any consumer audience.
Following lunch, participants traveled to the Ohio State House where they met with Representative David Hall (97th District), Chairman of the House Agriculture and Natural Resources Committee. Rep. Hall spoke about current Ohio legislation affecting the beef cattle industry and the future of agriculture in Ohio.
Next, delegates arrived at The Ohio State University where they were led through a mini Beef 509 course taught by Henry Zerby, Ohio State University Meat Science instructor. The group learned about the leading factors affecting meat quality, grading, price, flavor and tenderness. They also had the unique opportunity to observe the grand and reserve champion beef carcasses from the 2011 Ohio State Fair.
Early Saturday morning, Daren Williams provided insight into the U.S. Farmer and Rancher Alliance. Williams led the discussion on how attendees could utilize their presence within the industry to connect with consumers and extend the campaigns initiatives.
Ohio Farm Bureau Federation’s Dan Toland took the stage to provide delegates with an overview of the social media environment. Toland shared his knowledge of Facebook and walked participants through the enrollment process and demonstrated how to utilize the tools in order to educate consumers about the beef industry.
The Ohio Department of Agriculture’s Mike Bailey shared a Livestock Care Standards Board update and provided further insight into the progress that has been made by the board. Bailey encouraged the young producers to attend meetings and further familiarize themselves with the new practices that may affect their operations.
Ohio Beef Council staff led attendees through a discussion regarding OBC’s role in checkoff collection and current beef promotional efforts in Ohio. The conference concluded with a discussion led by OCA staff highlighting the value of membership.
Attending this year’s conference were Patrick Barker, Montgomery County; Ryan Bapst, Pike County; Danielle Everett and Michael Everett, both of Butler County; Neill Fowler, Greene County; Jason Gibbs, Shelby County; Andrew Hammer and Natalie Hammer, both of Stark County; Bailey Harsh, Delaware County; Casey Holton, Stark County; Jeff Moore, Gallia County; Alan Watson and Suzanne Watson, both of Licking County; and Sarah Wireman, Auglaize County. Young cattle farmers interested in attending the 2012 YCC should contact Andy Johnson at 614-873-6736 for details.
Smithfield Foods Expects to Return to Business as
Usual at Its Processing Facilities and Farms on Monday
In an initial assessment of damages in the wake of Hurricane Irene, Smithfield Foods Inc. announced Aug. 29 that employees will be returning back to work Monday at its meat processing facilities and farms in North Carolina and Virginia. The company’s headquarters offices in Smithfield are also fully operational.
Elsewhere, the company reported minor structural damage to some barns belonging to contract farmers in North Carolina and Virginia, but thanks to onsite emergency generators, all animals are continuing to receive regular food and water. In addition, Smithfield said that all of its environmental pollution-control systems are still in good working order.
“I am happy and greatly relieved to report that all of our employees are safe,” said Larry Pope, Smithfield’s president and chief executive officer. He added, “I also want to thank our employees at our farms and plants for the outstanding job they did in minimizing damage from the hurricane. They followed our emergency preparedness plans and observed safety precautions, and it really paid off.”
Ag Secretary Vilsack Announces Smart Grid,
Transmission System Improvements to Create Jobs,
Benefit Consumers in 14 States
Agriculture Secretary Tom Vilsack announced that rural electric cooperative utilities will receive funding for smart grid technologies and improvements to generation and transmission facilities. These loans will benefit more than 19,000 rural consumers in 14 states.
“Rural electric cooperatives provide direct jobs and support economic growth in our rural communities,” Vilsack said. “By financing electrical system improvements USDA and the Obama Administration helps ensure sustainable growth and business job creation. Investments in smart grid technologies will give rural electric utilities and their consumers one more tool to better manage use of electricity, increase reliability and lower costs.”
Among the rural electric cooperative utilities that will receive funding are Hoosier Energy Rural Electric Cooperative Inc., which serves Indiana and parts of Illinois. Hoosier received a $462.5 million loan to fund system projects to improve reliability and comply with environmental requirements. The loan will also finance smart grid technologies and transmission line improvements.
Northeast Oklahoma Electric Cooperative Inc., received a of $23.5 million loan to build or improve nearly 250 miles of distribution line and make other system improvements. The loan includes $1.2 million for automated metering.
The $900 million in loans announced today are provided by USDA Rural Development's Rural Utilities Service (RUS) to help electric utilities upgrade, expand, maintain and replace rural America’s electric infrastructure. RUS funding will help build nearly 1,500 miles of line and improve more than 1,700 miles of existing line in rural areas. More than $19 million will finance smart grid technologies. USDA Rural Development also funds energy conservation and renewable energy projects.
States in which rural utilities were selected to receive USDA funding contingent upon the recipient meeting the terms of the loan agreement include Delaware, Georgia, Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Montana, Oklahoma, South Dakota, Texas and Wisconsin.
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