November 8, 2000

Sen. Chuck Grassley said Tuesday a change he and other senators sought in the Internal Revenue Tax Code to help protect farmers and ranchers from paying a higher tax rate than other taxpayers has been made by the Internal Revenue Service. The new 2000 IRS publication 225, "Farmer's Tax Guide," says that farmers and ranchers will be able to average their losses and gains over a three year period.

Farm and ranch income can vary greatly year to year. Grassley said that without the ability to average income over a period of time, farmers and ranchers can be forced to pay an "unfair, higher effective tax rate than other taxpayers who earn the same but at a steady, consistent rate."

Grassley said the need to seek an administrative change by the IRS became apparent after the government proposed new regulations for averaging farm income in 1999 under section 1301 of the Internal Revenue Code. He said the proposed rules failed to make clear that "taxable income" in the farm income averaging formula could be a negative number. The resulting effect of this was an inflated average income for which farmers and ranchers were taxed.

He and other senators wrote a letter to the IRS which spelled out congressional intent regarding farm income averaging. The IRS responded by making the necessary change and issuing the Farmer's Tax Guide of 2000. Farmers also will be able to amend their tax returns for 1998 and 1999 to take advantage of the new rules.