Proposed tax regulation threatens multigenerational cattle operations

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The Internal Revenue Service hosted a public hearing Dec. 1 on a Department of Treasury proposed rule that would eliminate or greatly reduce available valuation discounts for family-related entities. Kevin Kester, National Cattlemen’s Beef Association vice president, said the regulation would effectively discourage families from continuing to operate or grow their businesses and passing them on to future generations.
Many cattle operations are family-owned small businesses, facing the same concerns as other small-businesses – making payroll, complying with numerous federal and state regulations, and paying bills, loans, and taxes. However, cattle producers face a number of unique challenges specific to agriculture.
“Ranching is a debt-intensive business, making the U.S. livestock industry especially vulnerable to the estate tax,” said Kester. “Beef producers largely operate an asset-rich, cash-poor business model: a cattleman’s biggest asset is his land. In the event of the death of a principal family member, illiquid assets are often sold in order to meet the costs associated with the estate tax.  As a result, many families are unable to keep their estates intact.”
For more than two decades, livestock producers have utilized legitimate valuation discounts as a means of maintaining family ownership. These discounts, which accurately reflect the actual market value of minority ownerships in closely-held businesses, reduce the tax burden at death allowing agricultural operations to maintain family ownership from one generation of producers to the next.
“Should the discounts be eliminated, a significant number of farmers and ranchers will face an even greater tax burden during the difficult task of transferring minority interests to the next generation,” said Kester. “Having dealt with the death tax on multiple occasions, I can assure you that it’s not easy to settle the estate of a loved one while coping with the loss of that loved one. To add insult to injury, the proposed rule will upend succession plans, halt planned expansion and growth, and require a majority of livestock operations to liquidate assets in order to simply survive from one generation to the next.”
The proposed regulations under Section 2704 will have a profoundly negative impact on the business climate for farmers and ranchers, ultimately dis-incentivizing a new generation of cattle producers from carrying on the family business. For that reason, NCBA calls for the IRS to formally withdraw the proposed rule.