A series of possible federal tax rulings adverse to farmers could undercut the Reagan administration's plan to prop up the agricultural economy by giving farmers surplus grain in return for not planting crops this year.
Agriculture Secretary John R. Block and farm-state lawmakers are pressuring for clarification of the income- and estate-tax questions before March 11, the signup deadline for the government's payment-in-kind (PIK) program.
Their concern is stirred by the possibility of Treasury Department rulings that could discourage farmers from taking part in the PIK program, which is aimed at reducing surpluses and raising farm income.
Legislation designed to clear up the tax questions has been introduced in the House, and more is being readied in the Senate, but Senate Finance Committee Chairman Robert J. Dole (R-Kan.) said he considers the situation "an emergency" that will not be resolved before the March 11 cutoff.
"Farmers are not signing up for the payment-in-kind due to the tax question. A lot are holding back," Dole said.
Dole has his staff at work on a bill, but he acknowledged that the tax-originating House Ways and Means Committee has first jurisdiction. Its chairman, Rep. Dan Rostenkowski (D-Ill.), has indicated that his first priority is Social Security legislation--not a PIK fix.
House Agriculture Committee chairman E (Kika) de la Garza (D-Tex.) and the ranking Republican, Rep. Edward R. Madigan (Ill.), have urged Rostenkowski to act on an "urgent" basis to resolve the tax dilemma so that farmers will be encouraged to get into the PIK program.
Reps. Tom Harkin (D-Iowa) and Richard J. Durbin (D-Ill.), Agriculture Committee members, introduced a bill last week that would protect PIK participants. "Failure to clarify this could greatly reduce participation," Durbin warned.
The tax questions surfaced first at a recent Agriculture subcommittee hearing chaired by Sen. Thad Cochran (R-Miss.), who, along with Sen. Walter D. Huddleston (D-Ky.), sounded the first alarms and urged Block to lean on the administration to resolve the doubts.
The major question involves a Treasury Department policy aimed at requiring farmers to pay tax immediately on the free grain they get from the government, rather than allowing them to defer payment until they actually sell it--as is the case with grain they produce.
Such a ruling could put some farmers in an economic vise, paying tax on 1982 crops sold this year as well as tax on the free grain, rice or cotton they would receive from the PIK program.
Treasury officials last week said they will support legislation directing a change in the policy, but they left open the possibility that, without legislation, the policy would be enforced as envisioned originally.
A second tax cloud hanging over the PIK program involves a Treasury interpretation of another law, which provides estate-tax breaks for family farms that are operated principally as risk-taking farms.
The Treasury Department has indicated that it would consider such farms in the PIK program as not operating--and thus not eligible for the tax breaks. The department also said it would back away from that position if directed to do so by legislation.
Cochran said yesterday that he thinks the doubts will be cleared by the administration before PIK enrollment is jeopardized seriously. But he said that as long as the doubts remain farmers may be reluctant to get into the program.