The Impact of the “Grain Glitch Fix” on Specialized Cooperatives

Abstract

This paper examines the influence of the tax rule changes associated with the Tax Cuts and Jobs Act of 2017 (“TCJA 2017”) and the Consolidated Appropriations Act of 2018 (“2018 Act”) fix to the Grain Glitch on the financing decisions and after-tax cash flows of Specified Cooperatives and their patrons. I show Specialized Coops have incentive pass-down their Section 199A(g) deduction to eligible patrons to increase their after-tax cash flows. I also show that, depending on the situation, Specialized Coops will have incentive to issue qualified or non-qualified distributions to their patrons in the form or stock to increase their own level allocated equity as well as to provide their patrons future cash flow flexibility. Finally, I suggest that the ability of Exempt Coops to take the Section 199A(g) deduction on non-patronage income may increase their incentive to organize as a Section 521 Exempt Specialized Coop.