"When we deliver our crop to the processor, they give us a rough idea of what we are going to get paid, but (under accrual) we would have to guess what we are going to get paid and show that as having received it. But, what if we don't receive it?" Coleman said. "I can't see where that would work, so to pay taxes on a number that you don't know just doesn't work."
"A bank required me to use accrual one time several years ago and the accounting fees to make the conversion just one time was just under $20,000" Coleman added.
Mark Watte, a diversified farmer from Tulare County, agreed that agriculture is unique compared to other businesses, due to the timing that payments are received for the crop and how this impacts a farmer's overall cash flow.
"With accrual, you'd pay taxes on whatever is earned in that particular year, but certainly in agriculture because of timing and pricing, we can have huge variations in our income," Watte said. "Having the cash basis is something we really need so that we do not have such huge ups and downs on our income tax. We're still receiving income from our 2012 pistachio crop—not a lot but there's still some, so there's a long lead time, especially on crops where you can't forward contract on the futures market."
Other issues that Farm Bureau is watching closely in the tax reform debate include repealing or scaling back certain tax deductions important to farmers and ranchers, and a new system of depreciation.
"Cash accounting combined with the ability to accelerate expenses and defer income gives farmers and ranchers the flexibility they need to optimize cash flow for business success, to plan for business purchases and to manage their tax burden by targeting an advantageous level of taxable income," Rolph said.
CFBF supports defeating the proposed cash-to-accrual tax-law change as part of the Farmers for Tax Fairness coalition created last fall. The coalition, Rolph said, shows that this isn't just a California issue; it will affect a lot of people nationwide.
To learn more about the campaign and how farmers are impacted by the proposed federal tax code changes, go to: http://fairfarmtax.com. To learn more about proposed tax reform changes in Washington or provide input, go to https://taxreform.gov.
(Christine Souza is an assistant editor of Ag Alert. She may be contacted at firstname.lastname@example.org.)