Section 199A

For many years CFE, our patrons and the cooperative system benefited from the tax deduction called DPAD or Section 199. When the new tax bill was recently negotiated and passed by congress the benefit or deduction allowed under 199 went away. While this does have a negative influence on the overall benefit of the previous deduction, a new deductible benefit was written into the law that our producers can take advantage of titled Section 199A.

In the new law the Section 199A provision states that a producer may deduct 20% of gross proceeds received from a cooperative for grain sales and patronage dividends. As the law stands today, this provision does not apply to a non-cooperative business or a cooperative that the producer is not a member of. Below is an example of the potential benefit that CFE members may take advantage of as the current law states today. In this example the table below assumes a $3.00/bu sale price, limitations are not met and the maximum benefit can be achieved under the provision. The same would be true for soybeans at whatever price was paid. 

Example: $3.00 corn X 20% = $2.40 of taxable sales. 
Tax Bracket    Percent Savings    Cent per Bushel Savings
10%                            2%                           $.060
12%                         2.4%                           $.072
22%                         4.4%                           $.132
24%                         4.8%                           $.144
32%                         6.4%                           $.192
35%                         7.0%                           $.210
37%                         7.4%                           $.222
 
As you can see above, this provision has a benefit that CFE member producers can take advantage of, as the law is written today. We understand non-cooperative agriculture entities are concerned about the advantages cooperatives have under the new 199A. They are currently in discussions with State Senators to better understand the benefits the new tax law has created for members of cooperatives. To date, the IRS has not issued any regulations or additional guidance on this provision. Once additional information has been released, this provision will need to be reassessed by the industry at that time. CFE is not providing tax advice for this situation but simply making you aware of the law as it is written today. We would encourage you to understand how this may benefit your operation and to also have a discussion with your tax advisor to further assess the implication of this law. 

CFE, our staff and auditors will also continue to monitor the situation and relay any new information as it becomes available. Thank you for your business and as always please call with any questions or concerns you may have (Rob Jacobs – 712-758-3636; Todd Netten – 712-451-6286).