Nelson Case Affirmed - Crop Insurance Deferral Not Allowed

June 10, 2009 | Roger McEowen

Crop insurance and disaster payments are normally reported as income in the year of receipt.  However, operators and share-rent landlords on the cash method of accounting may elect to defer crop insurance proceeds and federal disaster payments to the year after the year of the destruction or damage to the crops.   While the statute does not expressly require a farmer to have a practice of deferring all crop income to the following year to be eligible to defer receipt of crop insurance or disaster payment, the IRS has interpreted the statute to require a “substantial amount” of the crop to be deferred before the taxpayer is eligible to defer crop insurance or disaster insurance proceeds.  But what does “substantial amount” mean?  IRS has generally interpreted the phrase as meaning more than 50 percent.  That interpretation was tested in this case.

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