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Tax Reform for Farmers
Thousands of Wisconsin's dairy farmers could
receive a tax break averaging $2,000 under a
November 1998 Internal Revenue Service (IRS)
ruling regarding capital gains. In addition to the
1998 tax year, the IRS made the decision
retroactive -- meaning dairy farmers could file
amended tax returns for 1996 and 1997, resulting
in additional payments to farmers.
The original IRS interpretation of the 1996
Welfare Reform Law concluded that capital gain
net income included gains from the sale of
livestock. As a result, many Wisconsin dairy
farmers were no longer eligible for the EITC. I
sponsored legislation to change that and
encouraged the U.S. Treasury Department to
consider reversing its earlier position. In November
1998, the IRS announced the reversal of its earlier
interpretation of the welfare law. This reversal
clarifies that livestock sales will not be treated as
capital gain net income for purposes of the EITC. It
is estimated that as many as 12,000 Wisconsin
families could be impacted, resulting in an
estimated $15 million annually in additional tax
benefits for Wisconsin farmers.
Further information is available by calling the
IRS directly at 1-800-TAX-1040 or from the IRS
web page. Tax forms
are available by calling 1-800-TAX-FORM
(1-800-829-3676).
Farmers' income often fluctuates from year to
year based on unforseen weather or market
conditions. In 1999, Congress acted to allow
farmers to use income averaging to ride out these
unpredictable circumstances by spreading out their
incomes over a period of several years. However, a
problem involving the Alternative Minimum Tax
prevented many of our nation's farmers from
benefitting from this important tax provision.
Under legislation I introduced, if a farmer's
AMT liability is greater than taxes due under the
income averaging calculation, that farmer would
disregard the AMT and pay taxes according to the
averaging calculation. In this way, farmers would
still pay tax, but would also have access to tools
designed to alleviate the inevitable ups and downs
of the agricultural economy.
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