Joseph Morton reported earlier this week at the Omaha World-Herald Online that, “Longtime Iowa bankruptcy attorney Joe Peiffer has worked for decades with farmers who have fallen on hard times.
“One challenge that has bedeviled many of his clients over the years is the significant tax hit they take when selling land — and the resulting veto power that gives the IRS over their reorganization plans.
“‘This is a very common situation that the taxes are a huge problem when a farmer downsizes,’ Peiffer said. ‘It’s been that way my whole career.'”
The article explained that, “Congress just approved legislation sponsored by Sens. Chuck Grassley, R-Iowa, and Al Franken, D-Minn., that aims to address the problem that arises when farmers sell land in an effort to address their debt.
“Selling that land triggers potentially significant capital gains taxes that turn the IRS into a major creditor — one that has the ability to demand payment ahead of others and to prevent approval of a farmer’s debt reorganization plan.
“The new law sends the IRS to the back of the line as an unsecured creditor that simply gets a pro rata share of whatever’s left over.”
The World-Herald article added that, “Robert Dinterman, a researcher in agricultural economics at Ohio State University, said it’s hard to gauge the impact of the new law given that it went into effect just a month ago. But he said it will mean that the IRS can’t block a Chapter 12 bankruptcy plan — and that taxes can be potentially eliminated if the filing is successful.
“‘This will result in other creditors of farm debt receiving more in repayments, allowing a farmer to not have to sell off as much of their assets, and taking some amount away from governments due to a potential avoidance in taxes,’ he said. ‘Overall, that makes the Chapter 12 option more favorable to farmers than previously.'”
