Lawmakers Vow Bill
To Counter IRS Rule

WASHINGTON —(AP)— Thousands of farmers could be in for a surprise at tax time. The Internal Revenue Service has decided that farmers can no longer use commodity contracts to defer their taxes, a common practice among growers.

Several senators have urged the IRS to reverse its decision and said recently they would introduce legislation to keep the agency from enforcing it.

In a joint, bipartisan statement, Sens. Byron Dorgan, D-N.D., and Charles Grassley, R-Iowa, said the IRS decision is "unfair, it is not supported by current law, and it imposes an unintended and unacceptable financial hardship on farmers."

Grassley is a member of the Senate Finance Committee, which writes tax law. Dorgan is a former state tax commissioner.

The commodity contracts have become a popular way for farmers to level off their income and taxes from year to year.

Under a typical grain contract, farmers deliver their crop to a elevator in the fall and receive the payment over the ensuing months. By deferring the income, producers lower their tax liability in the year they sold the grain. If they have a poor crop the following year, the losses may offset the income deferred from the previous year.

The IRS, in a decision released last month, ruled that the income should be taxed the year the grain is sold. The agency based its decision on changes made in the 1986 tax overhaul.

Jim Miller, vice president of government affairs for the National Association of Wheat Growers, said the decision would be a "significant hit" to farmers.

"Also, the fact that it would be implemented three quarters of the way through the year can catch an awful lot of people unaware," he said.