Tax Reform Act of 2014 Discussion Draft

Agribusiness

By: Dennis Gardiner, CPA, Partner  |  email

If our congress could ever overcome their inability to work together, we may someday face reformed tax rules; which of course has some positives, with several negative impacts potentially for our clients.  On February 26, 2014, House Ways and Means Chairman Dave Camp (R-MI) released a “Tax Reform Act of 2014” discussion draft.  If you want to read it in its entirety, it is a mere 979 pages.  Some of what was addressed for businesses in the proposal included: Corporate taxes
  • The current 35% top corporate rate would be reduced over five years to 25%. There would be a period of transition, dropping the rate by 2% each year through 2019.
  • The corporate alternative minimum tax (AMT) would be repealed.
  • Domestic production activities deduction (Section 199) would be repealed for taxable years beginning after December 31, 2016, and reduces the applicable percentage for 2015 and 2016 to six percent and three percent, respectively.
Depreciation of tangible property
  • Depreciation methods are proposed to better reflect the economic useful lives of depreciable property, similar to those currently used under the alternative depreciation system (ADS) in place of the existing modified accelerated cost recovery system (MACRS) depreciation rules. A straight-line depreciation method for tangible property is proposed with an applicable recovery period equal to the class life of the property. Recovery periods would be assigned for certain property (e.g., 40 years for real property) and relies on the Treasury Department to determine the class lives for all other property.
  • The depreciation proposal applies to property placed in service after December 31, 2016.
Inventory accounting methods
  • Use of the lower-of-cost-or-market (LCM) method to value ending inventory would be repealed and any write-downs to “bona fide net selling prices” for subnormal goods (i.e., goods that are unusable or unsalable in the normal way) would be prohibited. As a result, inventory would have to be valued at cost.
Net operating losses
  • A corporation would be limited in its ability to utilize its NOL deduction to 90 percent of taxable income (determined without regard to the deduction). The proposal generally would be effective for tax years beginning after 2014, and losses incurred after 2014 and carried back to prior years.
Like-kind exchange rules
  • The like-kind exchange rules would be repealed for transfers after December 31, 2014. Today, in a qualifying like-kind exchange, the basis in the new property equals the taxpayer’s adjusted basis in the exchanged property, thus deferring any gain inherent in the exchanged property.
Amortization of intangible assets
  • The recovery period for amortizable intangibles would be extended from 15 years to 20 years for property acquired after December 31, 2014.
New Market Tax Credit
  • In early-April, the House Ways & Means Committee reintroduced bipartisan legislation that would make the New Markets Tax Credit (NMTC) a permanent tax incentive. The NMTC is credited with creating more than 550,000 jobs and incentivizing more than $60 billion in private investment to strengthen economically-distressed communities. The NMTC incentive expired at the end of 2013.
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