There is a great deal of uncertainty tied to the Tax Cuts and Jobs Act (TCJA). One involves the treatment of chickens. Puns abound when analyzing how the Internal Revenue Service (IRS) will define chickens without running afowl of the new tax law. But all jokes aside, the issue is a serious one for those in the poultry market.
The question centers on whether a live chicken would count as cash if a liquid market exists. Why would it matter? If considered a cash equivalent, a different tax rate would apply.
The TCJA led to the creation of two different tax rates. The IRS taxes cash and cash equivalents at 15.5 percent. The agency taxes non-cash assets at 8 percent. The language of the law defines “cash” as:
(i) “cash held by such foreign corporation,
(ii) the net accounts receivable of such foreign corporation, plus
(iii) the fair market value of the following assets held by such corporation:
I) Personal property which is of a type that is actively traded for which there is an established financial market.
II) Commercial paper, certificates of deposit, the securities of the Federal government and of any State or foreign government.
III) Any foreign currency.
IV) Any obligation with a term of less than one year.
V) Any asset which the Secretary identifies as being economically equivalent to any asset described in this subparagraph.”
Will the agency treat the chicken as a non-cash asset and apply the lower tax rate, or will it consider the chicken a cash asset and apply the higher rate? The United States Treasury will need to provide additional regulations before a definitive answer is available.
Chickens are only the beginning. Tax payers will need to analyze various assets to determine which rate will apply. An attorney experienced in these matters can help to better ensure your tax filings follow applicable tax law.