The Tax Code has allowed farmers for many years to elect to defer for one year the receipt of crop insurance proceeds due to destruction or damage to the crop (primarily due to weather events such as hail, drought, etc.). These policies were originally designed to provide payments due to a certain specific cause such as a hail storm. A wheat crop destroyed by fire caused by equipment also qualifies.
However, about 20 years ago, the RMA started providing policies that made payments based on certain revenue criteria. If the total revenue generated by the farm was less than some "guarantee", then a claim would be paid.
The Tax Code is very specific that this election is only allowed due to destruction or damage to the crop. Any crop insurance payment made based on a reduction in price is not allowed. However, if a payment is made due to simply having a lower yield, will that portion be allowed for deferral.
The answer is generally no. There must be some type of damage or destruction. The Code does specify that other payments from USDA due to drought, flood or other natural disaster are allowed to be deferred and prevent plant payments are also allowed.
The IRS in their Publication 225 on page 12 specifically states that farmers cannot defer revenue protection payments. We disagree. The portion of revenue protection payments that are attributable to damage or destruction due to drought, flood or other natural disasters should be deferrable. However, the amount simply due to low yields (without drought, flooding, etc.) will not qualify for the deferral.
As of now, this is the guidance from the IRS. We will see if it changes.