Pub. 7 2018 Issue 8

October/November 2018 21 L E A D I N G A D V O C A T E F O R T H E B A N K I N G I N D U S T R Y I N K A N S A S expand the abilities of the Farm Credit System Insurance Corporation (FCSIC) to act as a conservator or receiver for any FCS institution. This provision accounts for about 10 percent of the total length of the Senate version of the Farm Bill. One can reasonably wonder if the FCA sought these expanded receivership powers for the FCSIC because of the challenges it has faced in dealing with the Southwest situation and with the subsequent accounting fraud at Lone Star Ag Credit, which I most recently reported on in the May 2018 FCW. Given the recent decline in farm income, the likely negative impact of retaliatory tariffs on American farmers, and possible accounting problems and fraud at other FCS associations, the Senate and House ag committees should hold hearings to explore how well the FCA is dealing with financially troubled FCS associations. Implications of the growth in on-farm electricity generation CoBank, the only FCS institution empowered to lend to rural utility cooperatives, recently published a report about farmers generating more and more of the electricity they use, especially poultry, dairy and swine producers. (Read the report and a news release summarizing it.) While the report focuses on solar generation of electricity, wind power and the burning of farm and animal waste also are sources of energy for on-farm generation of electricity. The decreasing cost of batteries further enhances the attractiveness of on-farm electricity production as does the ability of farmers to sell the excess power they generate to their local utility through “net metering” arrangements. On-farm electricity generation and storage may even reach the point, especially in remote areas, where a farmer or rancher can completely disconnect from the electricity grid. All forms of on-farm electricity generation and storage are capital intensive, which creates loan demand that can be financed by banks, the FCS, and other lenders. How FCS institutions classify their electricity-related loans for tax purposes, though, will determine how effectively banks and other taxpaying-lenders can compete for this business. This is the case because the profits an FCS institution earns on loans secured by real estate are exempt from all income taxation while profits earned on non-real-estate loans, such as for tractors and other farm equipment, are subject to federal income tax. This difference in tax treatment is a key reason why the FCS has more of a competitive edge in real-estate lending than in non-real-estate lending. Therefore, the FCA should require that FCS institutions treat all loans related to on-farm electricity generation and storage as equipment loans rather than as real estate loans even when the equipment, such as solar panels or wind turbines, are permanently attached to the ground. The FCA can accomplish this by mandating that loans made by an FCS association related to electricity generation and storage be placed on the books of its production credit association subsidiary, which is subject to the federal corporate income tax, rather than on the books of its tax- exempt federal land credit association subsidiary. MO S S A DA M S .C OM / F I Assurance, tax, and consulting offered through Moss Adams LLP. Investment advisory services offered through Moss Adams Wealth Advisors LLC. Investment banking offered through Moss Adams Capital LLC. Discover how Moss Adams is helping Kansas community banks thrive. We’re committed to working with you to manage risk and grow operations with our accounting, consulting, and wealth management services. RISE WITH THE WEST. PRO SP ER I T Y R I S E S I N THE WE ST ADVERTISING in your association’s trade journal is a solid approach to business development. Business publications are rated the first choice for staying in touch with what’s going on in their sector by % of decision makers. % of managers would recommend to people starting a career in their sector to read the business publications. A recent Nielsen Catalina study shows an average ROI of $ . for every $1.00 spent on print ads. Almost half of those surveyed preferred to look at an ad in print, and only in  preferred to see that same ad in a digital version. And no one wanted to see it in an app. Print is tangible, it’s engaging, it’s readable, but most of all… it works! Kris@thenewslinkgroup.com thenewslinkgroup.com | (v) . .