1. 2014 Pork Management Conference June 19, 2014 Tampa, Florida

2. Income & Estate Tax Update Income Tax Legislation – 2014 and Beyond Estate Tax Update – Where Are We Now? Budget and Tax Reform Proposals

3. Tax Legislation Since June 2013

4. American Taxpayer Relief Act Section 179 Expensing Bonus Depreciation Tax Credit Extension R&D Credit / WOTC Thru 2013 Avoided the so called“FiscalCliff” for some

5. Top Tax Developments of 2013 1.American Taxpayer Relief Act 2.3.8% Net Investment Income Tax 3.Health Care Reform Implementation 4.Tax Treatment of Same Sex Couples 5.Tangible Property Legislation 6.Expiring Tax Provisions –Research & Development Credit –Work Opportunity Tax Credit –50% Bonus Depreciation –$500k 179 Expensing Limits –Reduced S-Corp BIG Holding Period

6. Final Repair Regulations on Tangible Property Costs Issued  Replaces 2011 temporary regulations  Provides safe harbor expensing of $500/$5,000  Rev. Proc. 2014-16 provided automatic accounting method change

7. Ruling on Partners and S-Corp Shareholders  Proposed regs issued on partners share of recourse liabilities – overlapping risk of loss, tiered partnerships, related parties.  Tax courts hold S-Corp shareholder not entitled to basis for loan guarantee  CCM concludes guarantor of LLC debt is “at risk” (even though right of reimbursement from LLC)

8. IRS Audit and Collections Statistics Enforcement Revenue Collected 2013: $53.35 Billion Individual Coverage based on AGI: < $200k – 0.88% $200 - $1mm – 3.26% > $1mm – 10.85% Corporate Coverage based on Total Assets: $10mm - $50mm - 6.98% $50mm - $100mm –15.51% $100mm - $250mm - 19.43% > $250mm - 33.88%

9. American Taxpayer Relief Act Estate Tax Review $5mm Indexed Exemption - Permanent Top Rate for 2013 and Beyond – 40% Permanent Unification of Estate, Gift & GST Taxes Permanent Extension of Portability

10. Estate Taxes: Post-American Taxpayer Relief Act Calendar YearApplicable Exclusion Amount Top Rate 2011$5,000,00035% 2012$5,120,00035% 2013$5,250,00040% 2014 and Beyond$5,340,00040%

11. President Unveils 2015 Budget – $3.9 Trillion Continued curbing of tax preferences for high income individuals & emphasis on low/middle class tax reform Potential reduction of corporate tax rate but surrender of certain corporate tax preferences Proposed Renewals: Section 179 Expensing Limit of $500k Bonus Depreciation – Extension to 2014 not included in budget proposals Estate tax – 45% rate, $3.5 million lifetime exemption

12. President Unveils 2015 Budget – $3.9 Trillion Revenue Raising Proposals: Limits of Section 1231 Like-Kind Exchange Deferral Limit to $1mm Cap Gain Deferral per year Self-Employment Taxes - Professional Services Ordinary Income Tax on Carried Interest Profits

13. Focus on Tax Reform House is currently considering 2 extender bills: Permanent S Corporation Built-in Gains Recognition Period Act of 2014 America's Small Business Tax Relief Act of 2014

14. Focus on Tax Reform June 9—Senate Finance Committee schedules hearings aimed at comprehensive tax reform. Senate Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Orrin Hatch (R-UT) “reinforced their commitment to overhauling the nation's broken tax code through comprehensive reform.” To this end, they announced that the Finance Committee would hold a series of hearings this month, followed by two hearings in July on modernizing corporate taxation.

15. Zeroed Out GRATs Jason Thomas, CPA, JD

16. “GRAT” Grantor Retained Annuity Trust

17. Opportunity A transfer assets to family members or others gift tax free an environment unique to pork producers

18. Structure Grantor contributes asset with appreciation and/or income potential to grantor trust with set term Grantor retains annuity during term of trust At end of term, assets not used to pay annuity are distributed to family members or others

19. Tax Consequences Gift Tax: No taxable gifts as a result of the GRAT. Grantor must file gift tax return in year of contribution of assets to GRAT. Income Tax: The annuity received is not taxable, but grantor reports any income of the trust on his or her income tax return and pays income tax.

20. Annuity The annuity is paid to the grantor using cash or assets of the trust. When the trust is funded, the annuity is equal to or greater than the value of the assets contributed to the trust. We anticipate a pork producer using ownership units in his or her company to pay the annuity.

21. “Zeroed Out” As a result of the annuity being equal or greater than the value of the assets contributed to the trust, there is not a taxable gift which makes the GRAT a “Zeroed Out GRAT”

22. Example (slide 1 of 1) Pork producer contributes ownership units in company valued at $20MM to a two-year GRAT Producer is guaranteed an annuity payment equal to $20MM + return on investment for a two year period. Due to risk management program, producer knows ownership units will increase in value over two year period because profits are locked in so long as production occurs.

23. Example (slide 2 of 2) At the end of the two year term of the trust, the value of the ownership units increases to $30MM. The trust terminates and distributes $10MM of ownership units to family members or others gift tax free ($20MM original gift plus $10MM appreciation less $20MM annuity paid). The number of ownership units did not increase, only the value. Some of the units came back to the producer via the annuity ($20MM); the remaining units ($10MM) are distributed at the end of year two.

24. PORK PRODUCER FAMILY MEMBERS GRAT $20MM OF UNITS $20MM ANNUITY $10MM OF UNITS PASSING TAX FREE UNITS INCREASE IN VALUE BY $10MM OVER TERM OF TRUST

25. 2014 Pork Management Conference Thank You Rob Gunther, CPA Jason Thomas, CPA, JD rgunther@frostpllc.com jthomas@frostpllc.com Frost, PLLC (800) 766-9241 Direct: (501) 975-0112