Deferring Crop Insurance Income
10/8/2009
Under Treasury Regulation 1.451-6(a)(2) (the purpose of which is to ameliorate the effects of farmers reporting two years of income in one tax year), crop producers who typically don’t sell—and claim income—from their crops until the year after production typically can also wait to declare crop insurance indemnity payments.
However, in a recent court case, Nelson v Commissioner [I.R.C. 451], the Eighth Circuit Court of Appeals said that regulation applies to a taxpayer who receives insurance proceeds as a result of the destruction of or damage to two or more crops and whose customary practice is to defer more than 50% of the aggregate income.
University of Wisconsin law professor Philip Harris reports that in this case, the taxpayers usually defer 35% of their sugar beet income and a total of more than 50% of the combined income from all their crops. However, they received payment for only sugar beets. They were not allowed to defer the crop insurance proceeds.
