The grain glitch was an unintended consequence of Section 199A, the provision that created the 20 percent tax deduction on income derived from pass-through businesses designed to replicate the tax benefits accorded to farmer-owned cooperatives and their farmer-patrons under the previous Section 199, also known as the Domestic Production Activities Deduction. However, the new 199-A provision had the impact of creating a disparity between marketing products to cooperatives versus non-cooperatives.
The disparity comes from the fact that pass-through business owners who belong to co-ops are currently able to take a deduction for 20 percent of qualified cooperative dividends received from agricultural or horticultural cooperatives – in addition to the pass-through business deduction described above. As many in the agricultural sector noted, including many farmers, this provision would very likely incentivize farmers to sell their products to cooperatives rather than to a private or investor-owned company in order to receive a significantly larger tax deduction.
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