MF Global failure creates tax crunch for farmers
CHICAGO (Reuters) - With the tax man breathing down his neck, Ohio farmer Tony Rohrs is scrambling to figure out how much money he made last year in an account at MF Global.
Thousands of former clients of the failed brokerage, including farmers, cattle ranchers and investors, have not yet received tax forms that detail their profits and losses, preventing them from preparing accurate returns for the Internal Revenue Service ahead of a rapidly approaching deadline.
"I'm running out of time," said Rohrs, who faces a March 1 filing deadline like many farmers.
The collapse of MF Global, which had a large group of agricultural clients, has produced one financial frustration after another for former customers who still have not been fully reimbursed for hundreds of millions of dollars that were frozen in their accounts as a result of the firm's October 31 bankruptcy.
A trustee overseeing the bankruptcy frustrated customers by returning portions of the frozen funds in staggered amounts during the past three months and requiring them to fill out claim forms to get their own money back.
The delayed tax forms add insult to injury for many as the lack of data means some people may have to pay taxes on profits they did not really make while being unable to write off money they may never see again.
The tax forms, known as 1099s, are normally delivered around the beginning of February.
However, the trustee, James Giddens, has pushed back the deadline for mailing the forms as he investigates an estimated $1.6 billion shortfall in accounts of customers of the brokerage. He has said the firm's use of customer funds to cover corporate transactions led to the massive shortfall.
The latest delay came on Wednesday as Giddens applied for permission to send out one variety of the 1099 form 30 days after the February 15 deadline. He previously applied to extend by 30 days the deadline for a batch of different 1099 forms that were due out by January 31.
MF Global, run by former New Jersey Gov. Jon Corzine, collapsed after making risky bets on European sovereign debt. Customers' accounts were subsequently transferred to a handful of other brokerages in November.
Rohrs has received 1099 forms for each of his two MF Global accounts, which were transferred to brokerage R.J. O'Brien. However, one 1099 reflected only losses he incurred following the transfer in November, leaving out gains earned during the first 10 months of the year.
Rohrs, who plants corn, soybeans and wheat, said he would use his own financial records to make his best estimate of how much money he made.
It is difficult for many farmers to estimate earnings because they do not often keep detailed records of their profits or losses in individual accounts. Instead, they rely on brokerages like MF Global to do that job and send them an annual statement.
Rohrs, like many farmers, had a hedge account with MF Global that was used to protect his positions in the cash grain markets.
Lacking the 1099 forms, former clients have hired tax specialists and attorneys to help them figure out what they owe and how to report it.
For farmers, it is another expense and distraction from the collapse that already forced some to put off buying crucial supplies needed to produce food.
"I've got a business to run and I've got to keep doing that," Rohrs said.
Accountants at Pioneer FBFM Association, a nonprofit in central Illinois that helps farmers run their businesses, have been receiving emails daily about the late 1099s, agent Kent Meister said.
Farmers must file their taxes by March 1 if they earned at least two-thirds of their gross income from farming and did not file an estimate of what they owe in mid January. The earlier-than-normal deadline is a trade-off for not paying estimated taxes throughout the year.
Even if the forms arrive soon, Meister is worried they will be full of errors, leaving little time for farmers to pursue corrections. He is telling clients to do their best to put together records from last year to determine their earnings at MF Global.
The difficulties with 1099s could prompt farmers to take a more active role in tracking their earnings, with Meister saying his "ultimate solution is that maybe we do a better job of accounting for these things each month."
Former MF Global client Joe Ocrant, a trader and president of cattle-based investment firm Oak Investment Group in Chicago, expects he will have to file for an extension for his tax returns due to the delay.
Ocrant received a 1099 from R.J. O'Brien, which now clears his accounts, showing he earned a larger-than-expected profit after his account was transferred.
He is reluctant to pay taxes on the gains because he has not received a form from the trustee and expects it will reflect a commensurate loss in the account.
"I cannot show that loss because I do not have a 1099 from MF Global," Ocrant said.
PLEA TO IRS
An IRS spokesman declined to comment on the delays, saying the agency could not discuss "a specific taxpayer or situation." The agency's website directs taxpayers to submit an amended return if they receive a 1099 form after filing their taxes.
Customer advocate group the Commodity Customer Coalition is pushing the government for more guidance. It estimated that "not a single MF Global customer has filed their 2011 tax return as a result" of the trustee's delay in sending out 1099 forms.
The coalition asked Treasury Secretary Tim Geithner to direct the IRS to tell former MF Global customers how to account for assets still frozen in the bankruptcy. It has not yet received a response, said John Roe, the group's co-founder.
Former clients have received about 72 percent of their missing money back so far. They cannot declare the remainder as a loss yet because there is still the possibility it will be returned, tax experts said.
"It's all still in the works of being returned," farmer Rohrs said, adding sarcastically: "That's a little bit of icing on the cake."
(Additional reporting by Theopolis Waters in Chicago; editing by Jim Marshall)