Test Your Grain in the Field

11/5/2009

Late planting combined with a number of other weather trials this summer resulted in some quality issues such as cob rot, agronomists report. If you think any of your crop may be affected by damage that will reduce the price you receive—and especially if you suspect molds or fungus—you would be wise to get samples checked before you bin the grain.

Crop insurance policies for corn, grain sorghum, barley, rye, wheat, oats, sunflowers, soybeans, canola, flax, and safflowers all may qualify for quality adjustments. “Your policy and its special provisions list will tell you the types and levels of quality deficiencies that are covered, describe how and under what circumstances various discounts will be applied and specify who must obtain the samples and can perform the determinations,” says Laurie Langstraat of National Crop Insurance Services. “Contact your agent or insurance company if you have any questions.” 

Tax Treatment. If you receive crop insurance indemnity payments, they generally have to be declared as income in the year received, says Rob Holcomb, University of Minnesota Extension economist. “You can postpone reporting the proceeds for actual physical damage until the next year,” he adds, if you meet all the following conditions:
• You use cash accounting.
• You receive the insurance payment in the year the crop was damaged.
• You can show that under normal business practice, the crop income would have been in a year other than when the damage occurred.

Payments on policies that aren’t based on actual losses by the insured, such as county-based coverage, cannot be deferred under I.R.C. Sec. 451(d).

If you have revenue-based coverage, there’s a formula to compute the portion of the payment deemed to be tied to crop yield versus price changes. Your claim report may show the computation. For more information, see www.taxworkbook.com and www.irs.gov (Publication 225).