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Senate Study Bill 10

Bill Text

  1  1               SENATE CONCURRENT RESOLUTION NO. __
  1  3                     BY CHAIRPERSON RENSINK)
  1  4 A Concurrent Resolution to request that the United States 
  1  5 Internal Revenue Service and the United States Congress act to 
  1  6 allow farmers to use deferred payment contracts without being 
  1  7 subject to alternative tax liability.
  1  8    WHEREAS, farmers are forced to face volatile income swings
  1  9 that result from unpredictable and uncontrollable weather and
  1 10 markets; and
  1 11    WHEREAS, a deferred payment contract is a legal instrument
  1 12 allowing farmers to sell a commodity for a fixed price in a
  1 13 tax year for payment in a later tax year; and
  1 14    WHEREAS, United States tax code provisions have allowed
  1 15 farmers to manage their tax burden in order to evenly spread
  1 16 income over a period of years to mitigate against the effects
  1 17 caused by volatile swings of income; and
  1 18    WHEREAS, under the regular income tax the income from
  1 19 deferred payment contracts is allowed to be reported in the
  1 20 tax year the cash is received; and
  1 21    WHEREAS, the federal alternative minimum tax is a separate
  1 22 tax that parallels the regular income tax and applies to
  1 23 ensure that at least a minimum amount of income tax is paid by
  1 24 corporate and high-income noncorporate taxpayers who reap
  1 25 large tax savings by making use of certain tax deductions and
  1 26 exemptions, such as accelerated depreciation, tax credits, or
  1 27 itemized deductions; and
  1 28    WHEREAS, the Internal Revenue Service is asserting that for
  1 29 alternative minimum tax purposes, deferred payment commodity
  1 30 contracts of farmers who report their income on a cash basis
  1 31 are installment sales and the income from these contracts
  1 32 should be taxed in the year of sale, not when the cash is
  1 33 received by the farmer in the following tax year; and
  1 34    WHEREAS, for a farmer who uses deferred payment contracts
  1 35 this policy may create a substantial tax burden in one tax
  2  1 year from which it is difficult or impossible to recover in
  2  2 subsequent tax years; and
  2  3    WHEREAS, farmers who have entered into deferred sales
  2  4 contracts to lock in high prices of the recent market may be
  2  5 subject to alternative tax liability before any income is
  2  6 received on the sale of their crop; and
  2  7    WHEREAS, this places a potentially crippling penalty on
  2  8 farmers, and especially small farmers, who oftentimes have
  2  9 difficulty maintaining cash on hand; and
  2 10    WHEREAS, the position of the Internal Revenue Service is
  2 11 based on a reading of the Tax Reform Act of 1986 which is
  2 12 contrary to the intentions of the United States Congress and
  2 13 four decades of case law and revenue rulings supporting the
  2 14 deferral of income through deferred payment and deferred
  2 15 pricing contracts; NOW THEREFORE,
  2 17 CONCURRING, That the United States Internal Revenue Service
  2 18 immediately reexamine its position regarding deferred payment
  2 19 contracts; and
  2 20    BE IT FURTHER RESOLVED, That the United States Congress
  2 21 provide a permanent solution to this problem by enacting
  2 22 legislation similar to HR 4072 introduced in 1996, in order to
  2 23 clarify the law and unquestionably allow farmers to continue
  2 24 to use deferred payment contracts while recognizing income
  2 25 when they receive payment; and
  2 26    BE IT FURTHER RESOLVED, That copies of this Resolution be
  2 27 sent by the Secretary of the Senate to the President of the
  2 28 United States; the Commissioner of Internal Revenue, United
  2 29 States Internal Revenue Service; the Office of Taxpayer
  2 30 Advocate, United States Internal Revenue Service; the
  2 31 President of the United States Senate; the Speaker of the
  2 32 United States House of Representatives; and Iowa's
  2 33 congressional delegation.  
  2 34 LSB 1546SC 77
  2 35 da/sc/14

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