(Adds background, comment from grain group)
By David Morgan and Tom Polansek
WASHINGTON/CHICAGO, Feb 8 (Reuters) - U.S. lawmakers are close to resolving a problem with the new federal tax law that gives grain cooperatives an unintended market edge over private companies, but have struggled to get members of the farm sector to agree, a Republican senator said on Thursday.
A provision known as Section 199A in the Republican tax overhaul that President Donald Trump signed into law on Dec. 22 allows farmers a 20 percent deduction on payments for sales of crops to farmer-owned cooperatives, but not for sales to private or investor-owned grain companies such as Archer Daniels Midland Co and Cargill Inc.
That has driven fears among U.S. ethanol producers and privately run crop handlers they could be squeezed out of the competition to buy farmers' harvests.
Senator John Thune told reporters that lawmakers are aiming to get a solution into spending legislation that Congress would need to take up next month. That could replace a measure to keep the government funded through March 23, which lawmakers had hoped to adopt on Thursday.
"We haven't gotten consensus within the stakeholder community on the language, but we have I think probably as good as we're going to get at a solution," the South Dakota Republican said.
He declined to disclose details of the prospective solution.
Thune and other Republican lawmakers from grain states have been working to find a solution with interested parties for about six weeks.
Private grain companies want Congress to resolve the issue quickly.
Growers seeking to take advantage of the tax provision have already been asking about transferring crops they have in storage at private elevators to cooperatives. However, some cooperatives do not want farmers to lose the tax benefit for making deliveries to their facilities.
"What we found was trying to satisfy co-ops and private grain operators was a challenge, and trying to get both of them to agree on final language has been a real challenge," Thune said.
Lobbyists initially expected an agreement to be attached to one of the short-term funding bills that Congress has considered this year.
The National Grain and Feed Association, a trade group that represents cooperatives and private grain companies, said it was disappointed there was no resolution yet.
"All concerned are very cognizant of the adverse and unforeseen disruptions Section 199A already is having in the marketplace and the perverse impacts it is having on companies’ business decisions," said Randy Gordon, the association's chief executive.
Reporting by David Morgan in Washington and Tom Polansek in Chicago; Editing by Chris Reese and Lisa Shumaker