Proposed IRS Rule Could Help Spur on the Decline of the American Family Farm

By Arizona Farm Bureau Government Relations Manager Anna Kennedy Otto: The Arizona Farm Bureau is comprised of around 2,500 farm and ranch families from all across the state (not counting the 20,005 Arizona farms and ranches the USDA counts overall; over 50% are on tribal lands). As small business owners, many of our members would be negatively impacted by the Internal Revenue Service’s (IRS) proposed rule that changes the manner in which business assets are valued for estate tax purposes. As drafted, the proposed regulations will make it more difficult for families to offer ownership to family members who are well positioned to continue operating the business when there is a death in the family.

The Dinsmore Farms, Inc., represents a 4th-generation farm in Yuma, Arizona. How will the proposed IRS rule impact them if the 5th generation wants to farm? Arizona Farm Bureau suggests that this new rule will harm families' efforts to transition the farm to the next generation. Photo courtesy Yuma farmer Jonathan Dinsmore. 

Arizona Farm Bureau submitted a letter via the Federal Rulemaking portal in opposition to the IRS’s proposed rule.

For a number of business and financial reasons, farms and ranches are often organized as family partnerships, LLCs or family owned corporations. Under current rules, the value of inherited family business assets can be discounted because of lack of marketability and minority discount. Under lack of marketability, values can be reduced because heirs cannot easily sell their share of the family business. For example, a person who inherits part of a farm or ranch may find it difficult to find a buyer who wants to be in the business partnership. With minority discounts, values can be reduced if the heirs do not have control over their share of the business. This happens when a person inherits less than half of a farm and cannot unilaterally make business decisions. Under the proposed rule, farm and ranch families would lose these important estate planning tools.

The National Association of Conservation Districts (NACD) also filed in opposition to the proposed IRS Rule. The NACD has three main concerns that follow:

  • Reduce the money farms have available to invest in on-farm conservation practices;
  • Compromise the ability of family farms to remain intact after intergenerational transfer; and
  • Change the rules and policies that families have known, used, and based their planning decisions on.

Said the NACD Submission: “NACD supports the use of financial assistance to support on-farm investments in conservation. The proposed rule change does precisely the opposite. Rather than freeing up additional money that could be used to implement voluntary conservation, the proposed change would increase the tax burden on farms. The opportunity cost of this tax would be less on-farm conservation and few soil health, water quality, and wildlife habitat benefits. We strongly urge the IRS to consider how this change would disincentivize farm families –the people who are responsible for producing this country’s food, fuel, and fiber – from implementing needed conservation practices on their land.”

Additionally, Arizona Farm Bureau understands that tax issues are complex and technical in nature. As members of the American Farm Bureau Federation, we support the technical comments they are submitting to this docket.

The transfer of ownership from one generation to the next is already a burdensome endeavor and should not need to be impacted further by increased estate taxes. The proposed regulations fail to consider the concerns and economic realities of farm and ranch owned businesses and we respectfully request the Treasury Department withdraw the proposed rule.

As highlighted by the United Stated Department of Agriculture (USDA), 97% of our farms and ranches are family owned, let’s not create another burden and hardship on family farms that prevent them from staying family farms.

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