Tax Planning for Producers Receiving Loan Servicing Assistance Payments
Agricultural Economics & Community Development
C Robert Holcomb
Extension Educator
University of Minnesota Extension
Marshall
Abstract
On August 16, 2022, President Biden signed the Inflation Reduction Act (Public Law 117-169). The Inflation Reduction Act provides relief for distressed borrowers for specific Farm Service Agency (FSA) direct and guaranteed loans. Financially distressed producers began receiving loan servicing assistance payments in 2022. Initially, these payments were not debt forgiveness but rather ad hoc taxable payments. On April 6, 2023, FSA announced that its position had reversed for FSA direct loans. Corrected Form 1099-Gs (Certain Government Payments) were issued to payment recipients removing the taxable payment and those individuals also received a 1099-C (Cancellation of Debt). These modifications will not affect borrowers with FSA-guaranteed loans. Producers receiving debt forgiveness will likely need to amend their 2022 Federal Income Tax Return. Some recipients may be able to exclude the cancellation of debt income depending upon a wide range of variables. Forthcoming workshops will help producers develop a strategy for dealing with FSA’s recent move to report payments as cancellation of debt. The author developed and delivered a presentation to multiple producer organizations whose membership received loan servicing assistance payments. The results of the workshops allowed producers receiving Loan Servicing Assistance Payments to take steps to help mitigate the increased tax liability resulting from the assistance payments.
Authors: C Robert Holcomb
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C Robert Holcomb Extension Educator, University of Minnesota Extension, Minnesota, 56258