MOODS SOUR AS FARM BILL ENDGAME DRAGS ON

(CQ Today) -- Final talks on the farm bill began weeks ago with optimism, but the process is now trying the patience of some lawmakers. The mood is quite different from a few weeks ago, when farm-state lawmakers were hopeful a breakthrough was close at hand. Since then, members of the tax and farm panels in both chambers have been trying to come up with a new funding mechanism for the measure (HR 2419). Under pay-as-you-go rules, any new spending must be offset by new tax revenue or funding cuts. Earlier this week, Senate Majority Leader Harry Reid, D-Nev., and House Speaker Nancy Pelosi, D-Calif., asked the negotiators to find a way, by Friday, to offset about $10 billion in extra spending. But even if lawmakers -- particularly the leaders of the Senate Finance and the House Ways and Means committees -- meet that deadline, there is no guarantee the White House will buy into the plan. Some aides say that members in both chambers have discussed cutting a deal without White House consent, sending that product to the president and letting him veto it — a tactic that could score the Democrats some political points in an election year. Behind all the proposals, deals and closed-door discussions looms a March 15 deadline for finishing the measure. That’s when a three-month extension of current farm bill expires, and members are facing the stark reality that they may have to pass another short-term extension — or punt the measure until next year.

NEW BILL HELPS FARMERS

New Depreciation Incentives for 2008

The recently enacted Economic Stimulus Act of 2008 provides both an expanded Section 179 deduction and 50% bonus depreciation. These are incentives in the law, for 2008 only, but the effective dates are tricky for fiscal year entities.

Background
On February 7, 2008, both the House and Senate passed H.R. 5140, the Economic Stimulus Act of 2008. This legislation provides the well-publicized individual rebates for lower and middle income filers. For business taxpayers, there are two significant depreciation enhancements, The Section 179 first-year expensing deduction has been nearly doubled. Second, the 50% bonus depreciation that existed temporarily after the 9-11 terrorist attacks has been restored for one year also.

Section 179 Enhancement
Under previous law for 2008, the Section 179 first-year deduction for items such as farm equipment, bins, drainage tile, irrigation systems, and single purpose livestock structures was $128,000. The asset addition phaseout limit caused a $-for-$ reduction in the Section 179 limit if eligible asset additions exceeded $510,000. For example, if a farmer added $600,000 of eligible additions in 2008, which is $90,000 over the phaseout threshold, the $128,000 Section 179 amount would have been reduced to $38,000.

The Economic Stimulus Act moves the Section 179 deduction to $250,000, effective only for tax years beginning in 2008. Also, the asset addition phaseout threshold is increased from $510,000 to $800,000. Accordingly, the phaseout range extends all of the way to $1,050,000 of eligible Section 179 asset additions in 2008 before Section 179 is fully phased out.

Example: Fred, a successful grain farmer with high profitability, learns that Section 179 is greatly expanded for 2008, and acquires $900,000 of eligible equipment additions. Fred is $100,000 over the asset addition phaseout threshold, and accordingly his eligible Section 179 deduction for 2008 is reduced from $250,000 to $150,000.

50% Bonus Depreciation
The Economic Stimulus Act restores the same bonus depreciation under IRC Sec. 168 (k) that previously was in the law from September 11, 2001 through December 31, 2004, but only for the year 2008. Fortunately, for farmers virtually all assets qualify for this 50% bonus, even machine sheds that are not eligible for Section 179. The basic rules are that the asset addition for the 50% bonus must:

1. Have a recovery period of 20 years or less (this covers virtually all farm assets, including machine sheds and other general purpose storage buildings),
2. The original use of the property must commence with the taxpayer (i.e., the asset is new rather than used), and
3. The asset is both acquired and placed in service after December 31, 2007 and before January 1, 2009.

In the case of an asset acquired by trade, both the boot and the adjusted basis of the relinquished asset qualify for the 50% bonus [Reg. 1.168(k)-1(f)(5)(iii)].

As in the past, a taxpayer will be able to elect out of using the 50% bonus depreciation. However, the election must be made by "class of property" which refers to the 3, 5, 7, 10, 15 and 20-year recovery period classes. The election to not claim the 50% must be made for all additions within an asset class placed in service during 2008 [IRC Sec. 168(k)(2)(C)(iii)].

Effective Date Differences
As noted earlier, both depreciation incentives are effective for one year only. Our clients need to understand that these are intended to stimulate the economy, and the assumption should be that Congress will not renew these (unlike the many other "extenders" which are routinely renewed by Congress).

But the effective date rules are inconsistent for some taxpayers. For calendar year individuals and business entities, both the enhanced Section 179 deduction and the 50% bonus depreciation are effective for calendar year 2008. But for fiscal year businesses, the expanded Section 179 deduction applies to the fiscal year beginning in 2008, while the 50% bonus depreciation applies from January 1 to December 31, 2008.

Unique Times for Grain Producers
In these times of high grain prices, those producers who are in need of capital expansion (new machinery, barns, bins, or machine sheds) will find that these depreciation incentives give them the ability to liquidate grain and claim an offsetting deduction in the form of additional depreciation. We should caution our clients that capital improvements should be first driven by business needs and not by a partial tax subsidy. But for those who are considering expansion or replacement capital expenditures, the case for doing so in 2008 rather than later is compelling.

Summary
The expanded Section 179 deduction and restored 50% bonus depreciation will be attractive opportunities for those ag producers realizing higher incomes and in need of capital improvements. Here is a quick summary of key differences in these two provisions:

New vs. used: Section 179 - Both; 50% Bonus - New only
Trades: Section 179 - Boot only; 50% Bonus - Entire basis
Eligible: Section 179 - Sec. 1245 prop.; 50% Bonus - All farm assets

Effective date: Tax yr. beginning 1-1-08 to 12-31-08

This notice is required by IRS Circular 230, which regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding information and or any attachment is a written tax advice communication, it is not a full "covered opinion." Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. Such assurances can be granted only by securing a covered opinion letter. Should you wish to explore the option of receiving a covered opinion letter relating to a tax advice matter, please contact us.

Andy Biebl and Bob Ranweiler - Biebl Ranweiler Education Services

SUMMARY OF THE ECONOMIC STIMULUS PACKAGE

Here is a handy three-page PDF summary of the Economic Stimulus Act of 2008 that can be downloaded for free. I think this summary, plus examples, covers the new law in easy to understand terms.

THE IRS IS LOOKING AT INDEPENDENT CONTRACTORS

If you have been following my blog you know that I am concerned about the practice of classifying workers as independent contractors. I am talking about the practice by many of simply not treating their workers as employees. This is good for the owner because they do not have to match Social Security and Medicare; pay Unemployment Taxes; pay Workman's Compensation; provide fringe benefits, or worry about the worker reporting their tips.

That sounds pretty good, but I don't think it will pass the IRS muster. If you provide control over the worker, most likely the worker is an employee. That is a discussion for another time.

Here is the issue that you need to be aware of. The IRS is now looking at worker classification. The IRS has just announced that it is going on the attack against firms that have misclassified workers. It is unveiling an electronic matching system to identify firms that issue 1099s with payments of at least $25,000 to five or more workers who don’t have any other sources of earned income. The Service suspects that in such cases the contractors may be employees for tax purposes. Businesses meeting these criteria will see employment tax audits in 2008.

You can't say that I did not warn you.

MORE ON THE STIMULUS REFUNDS

The IRS will move fast on tax rebates. The checks will start going out in early May, once the Revenue Service finishes processing returns filed around April 15. Rebates will be keyed to tax liability. Marrieds will get a maximum rebate of $1,200... singles-$600. But there is a catch. You must have had at least some federal income tax liability to receive the refund. More good news, filers with dependents under 17 get $300 per child extra.

Filers with small income tax liabilities will also get rebates. Marrieds paying $1 or more of tax will get at least $600 if their income topped $17,500. Singles will get at least $300 if they made over $8,750.

Even those who don’t pay any income tax can get rebate checks. Marrieds with at least $3,000 of earned income will get a minimum of $600, plus $300 per child. Singles with $3,000 of earnings will receive $300 plus $300 per child. This includes seniors and disabled veterans. For rebate purposes, Social Security benefits and veterans’ disability count as earned income.

But, there is no good news for those people paying high taxes. High-incomers won’t get checks. Rebates will start to phase out at $150,000 of adjusted gross income for couples and $75,000 for singles, falling by $50 for each $1,000 over these amounts. For example, a couple with two children won’t get a rebate if their AGI is $186,000 or more. Nor will anyone who can be taken as a dependent by another filer.You will have to file a 2007 tax return to get a rebate check, because the rebates will be based on the data shown on 2007 returns. Filing on an extension will delay your check. On your 2008 return, you’ll reconcile your rebates with your 2008 tax situation.

Technically, the rebate is an advance payment of a special 2008 tax credit. For most, the rebate will equal the tax credit allowed. Taxpayers whose credit exceeds their rebate will claim the balance on their 2008 tax return. If your rebate is bigger than the credit, you needn’t repay the Service.

The IRS has a special way to fill out Form 1040A if you need to file just to get the rebate. Go to http://www.irs.gov/ for a copy.

FREE AG TAX UPDATE

Be sure to attend Kopsa Otte's 19th Annual FREE Ag Tax Update on March 20, 2008 at the Holiday Inn Hotel in York, NE.

6-7 pm Horsd'oeuvres

7-8:45 pm Class

For more information or to reserve a space, please call 402.362.6636 or 800.975.4829,or e-mail ahansen@kopsaotte.com.

Celebrate National Agriculture Day by Attending!

Space Is Limited So Call Today!

NEBRASKA FARM NUMBERS FALL

'Nebraska farm numbers fall, upper sales brackets bulge'

(Lincoln Journal Star) -- Nebraska lost 300 more farming operations in 2007, but the bigger news might be in how high grain prices are increasing the numbers of farms in higher sales brackets. Despite an overall drop in the number of Nebraska farms and ranches from 47,600 to 47,300, those with annual sales of $500,000 or more increased nearly 10%, from 4,100 to 4,500. There was a 20% increase, from 5,000 to 6,000, in farms with sales between $250,000 and $500,000. The Nebraska field office of the National Agricultural Statistics Service released its annual report on farm numbers Friday. As prosperous as things are looking for grain farmers, livestock producers face a much more challenging year. Losses for operators of cattle feedlots could easily run $75-$85 a head in the first half of 2008. After that, there’s the possibility of profits of perhaps $5-$10 a head. The state’s cattle and hog sectors account for more than half of all farm income. But the pork business could be an even bigger struggle over the next 11 months due to high corn and soybean prices, higher imports of Canadian hogs, and a big inventory of U.S. hogs.

DID YOU KNOW?

I thought you might be interested in the You Tube video, Did You Know? It's full of interesting statistics. Click on this link to watch: Did You Know?

A FAT BILL IN MISSISSIPPI

'Nanny State: Mississippi bill would make it illegal for restaurants to serve the obese'

(TheSmokingGun.com) -- Mississippi state legislators last week introduced a bill that would make it illegal for state-licensed restaurants to serve obese patrons. Bill No. 282, which is likely dead on arrival, was introduced by two Republican and one Democrat. It proposes that the state's Department of Health establish weight criteria after consultation with Mississippi's Council on Obesity. It does not detail what penalties an eateries would face if they served someone with an excessive body mass index.

EMPLOYEE AWARDS

At one of your seminars, I remember you talking about how we could give awards to employees. I have some of my staff that I would like to provide awards to. Could you get me information on this?

Employee achievement awards can be very rewarding because they are not taxable to the recipient and are deductible by you. There are some specific requirements. On our website, we have a section called “Employee Achievement Awards.” Here is the link to that: Employee Achievement Awards

As you are looking at this, look very closely, because this cannot be an award in cash or near cash item, such as gift certificates or debit cards. It has to be actual property.If you do have any questions on this, please feel free to contact me.

Larry Kopsa, CPA

DEDUCTIBLE BUSINESS EXPENSES

One of the things we always want to do is to audit proof your records. We want to make sure that if the IRS ever comes in, we have all of our bases covered so that if you are audited, the audit goes as smoothly as possible.

One of the requirements the IRS has for reimbursing mileage and other business expenses to employees is that you have an "accountable" expense reimbursement plan.

Here is a link to a copy of a blank Accountable Expense Reimbursement Plan. AERP I would recommend you review this, and keep it as part of your permanent records.

I think the document is fairly self-explanatory. If you do have any questions, please feel free to contact me. It is a pleasure serving you.

Larry Kospa CPA

NEBRASKA AGRICULTURE GOING GLOBAL

(Beatrice Daily Sun) -- One market at a time, Nebraska agriculture has made a name for itself in the global economy. Stan Garbacz, Nebraska agricultural trade representative, addressed more than 300 people during his keynote speech, “Nebraska and the Cuban Trade Mission and Other International Markets” Thursday at the second annual Ag Expo of Southeast Nebraska at the Southeast Community College-Beatrice Campus. “We try to jump into a market as quick as we can,” Garbacz said. “If we don’t sell it, someone else will sell it to them.” Garbacz said Nebraska agriculture has tapped into many markets around the world, including in Japan, Hong Kong, Vietnam, Great Britain and, most recently, Indonesia. These markets have created excited opportunities for Nebraska, Garbacz said. He is particularly excited to be a part of the Vietnam economy. In recent years, one of the markets Nebraska has become involved in is Cuba, Garbacz said. There was a high need for dry beans in Cuba, and Gov. Heineman saw an opportunity where Nebraska could expand its market. Cuba has now become a good market for Nebraska, not only for dry beans, but other products as well, such as beef and wheat, he said.

FARM BILL NEGOTIATIONS

'Farm Bill Deal Remains Elusive After Weekend Negotiations'

(CQ Today) -- A long weekend of negotiations left House and Senate lawmakers still searching Tuesday for a deal on a new five-year farm bill. Negotiators had hoped to have the final version of the measure (HR 2419) pretty much wrapped up by Feb. 17, but according to staff members from the House and Senate Agriculture committees, members are still at odds on several points, with no predictions as to when an agreement is likely to emerge. At issue is how much Congress should authorize for farm subsidies, nutrition supports, conservation initiatives and other Agriculture Department programs the farm bill covers. The Bush administration has said that both the House-passed version of the bill and the Senate’s were too expensive; both drew veto threats. Last week, the House announced a new version of the bill that would require only about $6 billion in spending above the baseline over 10 years. But much of that savings came at the expense of crop subsidies, and agriculture groups balked at the number. So farm-state senators countered the House proposal with a 10-year bill that would cost about $12.3 billion over baseline. The administration rejected that proposal over the weekend. A major sticking point — for the White House and the House alike — is a $5 billion agriculture disaster fund that would help farmers through drought, flood and fire. The trust fund, which was in the Senate bill but not the House version, accounts for the dramatic differences in spending between the House and Senate proposals.

EAT RED MEAT

Here's a funny You Tube video for you Beef Producers. Be sure to watch the whole video; the funny part is at the end. Beef

NEW VERSION OF FARM BILL

'House lawmakers propose new version of farm bill'

(CQ Today) -- Aides say a new farm bill proposal written by leaders of the House Agriculture Committee will fall flat in the Senate, where members are working on their own deal. Senators, House members and Agriculture Department officials were scheduled to meet late Wednesday to discuss the plan. But senators said earlier that they were disappointed with it and would be offering a more expensive counterproposal. The conflict between the chambers has been brewing for weeks as House Agriculture Chairman Collin C. Peterson, D-Minn., and the panel’s ranking Republican, Robert W. Goodlatte of Virginia, wrote a new version of the farm bill that would cost less than the House- or Senate-passed versions of the bill (HR 2419). By trimming farm subsidies here and there, and eliminating the tax increases proposed to pay for them, Peterson and Goodlatte are hoping to overcome White House veto threats. The administration says the bills passed by both chambers are too expensive, would not do enough to cut farm subsidies and have too many revenue-raising tax provisions. Peterson said his plan, which would require about $6 billion in such offsets, is meant to jump-start stalled negotiations on the legislation. Beyond the tax offsets, the Peterson-Goodlatte draft would trim proposals for spending on farm subsidies. Farmers would not get direct payments, which are paid annually based on what they grow and their total acreage, during the ninth year of the bill’s 10-year projections. Sugar and cotton growers would see some tweaks to their supports. Farmers who earn more than $900,000 a year and make most of their income from farming would be ineligible for farm payments. The House had originally proposed a $1 million limit, and the Senate included a $750,000 limit for farmers making only part of their income from agriculture. The White House has been pushing for even tighter restrictions — a cap of $200,000 a year. The new proposal would provide $8.5 billion over 10 years for nutrition programs. The House-passed bill would allocate $11.5 billion.

ECONOMIC STIMULUS PACKAGE MAY OFFER BUSINESS TAX CUTS

You've probably read that President Bush and Congressional leaders have agreed on a $150 billion stimulus package to prop up the economy and help prevent a recession. News reports have focused on tax rebates for individuals. But you may not realize that the package includes generous incentives for buying business equipment as well.

Want more cash in your pocket? The bill reduces the 10% federal tax bracket to zero for 2008 -- then delivers the savings now in the form of rebates ranging up to $600 for unmarried individuals, $1,200 for married couples, and $300 per child up to a maximum of $600. This break phases out for incomes above $75,000 ($150,000 for joint filers).

If you are in business the bill also gives you a 50% bonus depreciation deduction for new equipment you buy for your business in 2008. It raises the Section 179 first-year expensing limit from $125,000 to $250,000. And it doubles the phaseout for Section 179 deductions from $400,000 to $800,000. This is great news if you're planning to buy vehicles or equipment for you business, or even to renovate business premises.

Click on the following link to access examples of rebate amounts as caclulated from the taxpayer's 2007 tax return: Examples of Rebate Determination

Here is a calculator that will estimate the rebate you will be receiving from the government: Rebate Calculator

THE BIOFUEL FOLLIES

I think that it is very important to know what the people in the beltway (Washington) and the cities think about agricultural issues. I want to pass on to you an article/editorial buy George Will that was in the February 11, 2008 issue of Newsweek magazine. Click on the following link to read The Last Word by George F. Will. In this article he discusses his thoughts on biofuel. The Biofuel Follies

CORPORATE FARMING

CORPORATE OWNERSHIP OF FARM LAND. Brownfield News Online reported that a new ban on corporate farming may be coming in Nebraska, but only if the Nebraska Legislature acts on a measure to supplant Nebraska’s previous ban on corporate farming, which was ruled unconstitutional. State Senator M.L. “Cap” Dierks of Ewing introduced LB 1174 last week. The measure is designed to replace Initiative 300, a constitutional amendment approved by Nebraska voters more than 20 years ago, then struck down by a federal appeals court last year. “We think there’s a need for some protections for our family farmers,” Dierks said. “Protections from corporate takeover and invasion and whatever you want to call it, so this bill will do that.” And to do that, Dierks added, without violating the Interstate Commerce Clause of the U.S. Constitution or the Americans with Disabilities Act, the two reasons the appeals court struck down Initiative 300 last year. Nebraska Farmers Union President John Hansen, a long time champion of the corporate farming ban, said his attorneys tell him LB 1174, if passed, would withstand a court challenge. “We worked with our legal team to address the specific issues that were litigated and we feel that we have kept faith with the original intent and structure of Initiative 300,” Hansen told Brownfield. The next step for LB 1174 is a public hearing on February 12th. From there, Dierks said he will try to get the measure approved by the Nebraska Senate Agriculture Committee. If he succeeds, Dierks said he will prioritize the bill for debate in the full legislature. Brownfield News, Jan. 28, 2008.

http://ww.brownfieldnetwork.com/gestalt/go.cfm?objectid=C26EB7B8-C68B-E78B-C20630A94F8CF3D8

2008 FARM BILL. The Congressional Research Service has published a report on the tax provisions in the House and Senate versions of the 2008 Farm Bill. “Comparison of the House and Senate 2007 Farm Bills,” Jan. 22, 2008; Order Code RS22759.

http://opencrs.com/document/RS22759/

Courtesy of Agricultural Law Press

RURAL AMERICA'S MOST PROSPEROUS COUNTIES

Nebraska has 30 counties on the following list:

RURAL AMERICA'S MOST PROSPEROUS COUNTIES Contending that the success of rural areas is too often measured in terms of population and income growth, economist Andrew Isserman decided to adopt an alternate measure for rural success. Instead of growth, Isserman looked for which rural counties were prosperous. By studying prosperity instead, he and research colleagues Edward Feser and Drake Warren found that the prosperous places in rural America weren't the kinds of communities usually thought of as successful. Prosperous counties, according to Isserman, graduate their students from high school, have low rates of unemployment, have less poverty, and offer housing that is both affordable and in good repair. To see a map indicating the prosperity of U.S. counties, and to learn more about the study, visit

http://www.dailyyonder.com/finding-rural-americas-prosperous-communities.

To see a list of the 289 rural counties that have better housing, a more educated population, less poverty and more jobs than the national average, visit

http://www.dailyyonder.com/rural-americas-most-prosperous-counties.


Courtesy of Lori Shaal, Executive Director, Nebraska Diplomats

IDENTITY THEFT

Don't think that scams only happen to the "other guy." We have clients that have dealt with the repercussions of identity theft. Link to this Omaha World-Herald article to see the most recent scams. Omaha World-Herald

CLINTON HEALTH PLAN

'Clinton health plan may mean tapping employee pay'

(AP) -- Democrat Hillary Rodham Clinton said Sunday she might be willing to garnish the wages of workers who refuse to buy health insurance to achieve coverage for all Americans. The New York senator has criticized presidential rival Barack Obama for pushing a health plan that would not require universal coverage. Clinton has not always specified the enforcement measures she would embrace, but when pressed on ABC's "This Week," she said: "I think there are a number of mechanisms" that are possible, including "going after people's wages, automatic enrollment."

INSPIRE YOUR KIDS

As a parent, I know how difficult it can be to effectively communicate with our children. What we mean to "say" to our children isn't always what they "hear."

The following Reader's Digest article explains that a child's brain cannot be expected to process words the same way an adult's does. This article contains some great information to help us inspire our kids, and gives examples of 7 important things to say, and (7 things not to say). Reader's Digest