Farmers Beware: Tax Scams Targeting Agriculture

by | Jan 16, 2023 | Indiana Agriculture News, National Agricultural News, News Feed

When it comes to understanding tax law and rules, it can be “very complex. Can be very difficult to understand. Can be easy to create confusion,” says Roger McEowen, an ag law professor from Washburn University in Kansas. As a result, consumers, farmers, anyone can fall victim to various traps and scams regarding taxes. Schemes that could lead to loss of money and various legal issues.

One scam that McEowen says is currently targeting farmers focuses on new COVID legislation known as the Employee Retention Tax Credit.

“IRS is all over it. IRS keeps putting out warnings of these groups doing this. They’ll take some of the money or promise you you’re going to get a certain amount of the credit; we’ll take a percentage of that and then they’re gone. You can never find them after that. And there have been over 1,000 of these scammers that are out there. They’re catching all types of people but particularly they seem to be focusing on agriculture.”

McEowen provides another example of a tax scam that hits pretty close to home.

“The court is telling the story of an Indiana farm couple that read an ad in a farm magazine. They decided it’d be a great idea to do what the ad said and that is create a charitable remainder annuity trust.”

McEowen acknowledges that a charitable remainder annuity trust is a great tax planning technique in the right situation and if it’s done correctly.

“What happened was they created a trust in one year, created another trust in a second year, put their corn crop in one trust, put their soybean crop in another trust, which that’s mistake number one. You do not put a harvested crop in a charitable remainder trust because that’s all ordinary income and you can’t get a charitable deduction for it because you don’t have any income tax basis in that crop.”

Turns out, the situation was even more complex than that.

“They named their son as the trustee, which is another potential problem, then they didn’t report. They claimed that the distributions from the trust were not taxable to them- another mistake. They claimed that they had sold the crop to the trust and therefore that established the purchase price basis in the trust. That’s a mistake. You transfer the crop to the trust; the trust then sold the grain tax free because it’s a charity.”

McEowen advises producers to use a professional tax consultant specializing in agricultural tax law to help avoid potential costly traps.

Source: USDA Radio

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