Farm Bill-Section 1031 Exchanges

Delegates at the American Farm Bureau Federation annual meeting began our policy discussion by sending a clear message to Congress and the Administration that we want a new farm bill.

In the first order of business at the delegate session, I introduced a sense of the delegate resolution urging the quick conference of a comprehensive bill that maintains an adequate safety net. I felt it important for AFBF delegates to send a clear message to Chairman Peterson, Chairman Harkin and the administration that we want a farm bill. In some parts of the country farmers already have crops in the ground and others are making production decisions for the upcoming growing season. We need to know now what federal policies will look like.

The AFBF resolution also vigorously opposes either a one- or two-year extension of the current bill. The resolution passed by a unanimous vote.

In other action, AFBF delegates backed policy developed by the IFB Floodplain Study Group including support for comprehensive flood control on the Upper Mississippi as well as full federal funding for levee improvements.

Delegates approved several transportation-related changes to AFBF policy, including support for bonding authority for the Army Corps of Engineers to expedite construction of new locks on the Upper Mississippi and Illinois Rivers.

A couple of IFB-initiated policy resolutions were adopted in an effort to improve rail transportation. Railroads would be required to fully disclose grain bids for rail cars to bidders and a state could petition the Surface Transportation Board to declare a portion of a state an area of inadequate rail competition.

AFBF delegates also made several changes to its biofuels policy including calls for federal research for better performing E-85-fueled engines, timely approval of dispensing equipment, and potential use of recycled effluent water in biofuel production.

Delegates also directed the AFBF Board of Directors to study recent basis levels and to act to address the situation. I was pleased to see this action adopted. Over the past year, we have seen unprecedented lack of convergence between cash and futures prices in wheat, soybeans, and corn.

In their final action of the day, AFBF delegates re-elected President Bob Stallman to a fifth two-year term. Oregon Farm Bureau President Barry Bushue was elected Vice- President. Barry replaces Steve Appel of Washington who chose not to seek re-election.

I also want to provide the following background from AFBF related to Section 1031 tax deferred exchanges. This has been a high profile issue in Illinois. AFBF is working with the staff of the Agriculture committee and the Finance committee to ensure that farmland to farmland 1031 exchanges would not be impacted by any change in policy.

Issue:

Section 1031 tax deferred exchanges allow a property owner to sell property used in a trade or business and buy another property of like kind without having to pay capital gains taxes. In a deferred exchange, the replacement property must be identified within 45 days and closing must take place within 180 days of closing on the relinquished property.

The farm bill tax title approved by the Senate Finance Committee in early October disallowed tax deferred exchanges between farmland receiving certain farm program payments and improved real estate, unless the farmland is permanently retired from farm program payments. The measure was modified on the Senate floor via manager’s amendment to clarify that improved real estate does not include farmland with agricultural buildings. The proposal, as passed by the Senate, disallows tax deferred exchanges between agricultural land and non-agricultural land, unless the farmland is permanently retired from farm program payments.

Farm Bureau supports:

1. Allowing farmers to defer taxes when exchanging farm property for farm property (Section 1031 exchanges);

2. Changing from 45 days to 6 months, the time allowed to identify exchange property and from 6 months to 1 year, the time allowed to close and receive property under like kind exchange rules;

3. Permitting the proceeds of a Section 1031 sale to be re-invested in any assets subject to the capital gains tax.

Impact:

· Farmland for Farmland -- The modified provision passed by the Senate would have no impact on farmland for farmland Section 1031 deferred exchanges.

· Non-Farm Property Sold/Farm Property Purchased -- If non-farm property was sold and farm property was purchased using a 1031 tax deferred exchange (i.e., an office building is exchanged for farmland), the purchased farm property would become ineligible for certain farm program payments, not including conservation and CCC loan programs. · Farm Property Sold/Non-Farm Property Purchased -- If farm property was sold and non-farm property was purchased using a 1031 exchange (i.e., farm land is exchanged for an office building), the sold farm property would become ineligible for certain farm program payments, not including conservation and CCC loan programs.