October 2019

October 2019

USDA Issues Rules for Domestic Hemp Production Program

On October 29, 2019, USDA issued an interim final rule for the establishment of a Domestic Hemp Production Program. The rule implements provisions within the 2018 Farm Bill authorizing the production and transportation of hemp. The rule is effective from October 31, 2019, through November 1, 2021. USDA is accepting comments through December 30, 2019.

The 2018 Farm Bill, signed into law December 20, 2018, exempted hemp from the federal list of Schedule l controlled substances and added it to the list of agricultural commodities eligible for crop insurance. It also authorizes producers to grow hemp pursuant to a state, tribal, or federal plan. Under the new Domestic Hemp Production Program (Program), states or tribes may choose to regulate hemp production within their jurisdictions by submitting a plan for approval to the USDA. If a state or tribe chooses not to adopt its own plan, producers may grow hemp in those jurisdictions (if it is otherwise legal to grow) pursuant to a federal plan developed by the USDA. The interim final rule establishes the technical requirements for the Program, specifically setting forth the details for:

  • Licensing
  • Maintaining information on the land on which hemp is produced
  • Testing the THC concentration levels for hemp
  • Disposing of non-compliant plants
  • Compliance provisions
  • Handling violations

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Tax Court Case Relevant to Ag Cooperatives' New DPAD Calculation

On October 16, 2019, the United States Tax Court issued an opinion determining the correct way for an agricultural cooperative to characterize payments made to patrons and to calculate its DPAD deduction. Although IRC § 199 (DPAD) was repealed by the Tax Cuts and Jobs Act for tax years beginning on or after January 1, 2018, the opinion remains timely and relevant. It addresses several key issues involving IRS’ proposed regulations for the § 199A(g) “new” DPAD deduction, and arrives in time to inform IRS’ work in finalizing those regulations.

Background

Ag Processing v. Commissioner, 153 T.C. 3 (2019) arose because IRS disputed an agricultural cooperative’s calculation of its DPAD, including its impact on taxable income, for tax years 2007, 2008, and 2009. The cooperative was a non-exempt agricultural cooperative primarily engaged in processing and marketing soybeans purchased from members and nonmembers. The cooperative’s members included over 170 local farmer-owned cooperatives and several regional cooperatives. The cooperative conducted business with its members on a patronage basis, and members were eligible to share in patronage dividends paid by the cooperative. The cooperative also conducted business with nonmembers on a non-cooperative basis and nonmembers were not entitled to share in patronage dividends paid by the cooperative.

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