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Guests of the annual NDSU Extension Service "Income Tax Management for Ag Producers" event listen to presenter Alan Gregerson on the early afternoon of Tuesday, Nov. 14, 2017 at the Grand Forks (N.D.) County Courthouse. Nick Nelson / Agweek

Drought, research and development credits, identity theft and new tax plans play into 2017 tax management

GRAND FORKS, N.D. — Many things have changed in Upper Midwest agriculture over the past 27 years. But the importance of year-end tax management for ag producers remains undimmed.

"This time of year is especially good to look at tax management, said Jeff Parks, commercial ag lender for Community Citizens Credit Union in East Grand Forks, Minn.

Parks was among more than 100 people who attended the 27th annual Income Tax Management for Ag Producers on Nov. 14. The interactive event, organized by the North Dakota State University Extension Service and the Internal Revenue Service, was held at nine locations across the state, drawing attendees from North Dakota and adjacent states. Parks was at the Grand Forks (N.D.) County Courthouse location.

Once, most of the event's attendees were farmers and ranchers. Over time, as taxes grew more complicated and fewer ag producers do their own taxes, tax practitioners and ag finance officials such as Parks have come to account for the majority of attendees.

Andrew Swenson, NDSU farm management specialist, led this year's workshop. The presenters were Judy Gilbertson, senior tax specialist with AgCountry in Jamestown, N.D.; Alan Gregerson, senior stakeholder liaison specialist with the IRS; Jess Nehl, tax manager with Eide Bailly in Bismarck, N.D.; Kelda Rerick, certified public accountant with Haga Kommer in Bismarck; and Brent Roeder, senior tax manager with Eide Bailly in Fargo.

The three-hour workshop covered a wide range of topics, including the federal tax reform framework, forced livestock sales, research and development credits for agriculture and identity theft and security breech.

Potential federal tax reform changes being considered by the Trump administration and Congress are important year-end considerations, Gilbertson said.

But she cautioned, "At this point, they're just ideas."

Widespread drought this summer forced some area ranchers to sell livestock, Nehl said.

He examined the two sections of the Internal Revenue Code that involve the tax consequences of forced livestock sales. ICC 1033 allows producers to postpone reporting gains from forced sales of draft, breeding or dairy livestock, though not calves. ICC 451(e), in contrast, applies to all livestock and allows producers to defer income until the next tax year.

There are other differences between the two options, which also need to be considered, Nehl said.

Though research and development credits most often are identified with technology businesses, ag producers in some states, including North Dakota and Minnesota, potentially can benefit from the credits, too, Roeder said.

Crop production, animal production and crop and food processors are all considered "qualified activities" for the credit. But the credit can be difficult to calculate and requires new or improved product design, process development or improvement, designing or modifying equipment or software development, according to information presented at the workshop.

An activity that doesn't meet those criteria — such as building a standard grain bin — does not qualify, Roeder said.

Identify theft is a growing problem, one that tax professionals can play a crucial role in helping their clients avoid. Tax practitioners also can help clients who have been victimized, Gregerson said.