June 2019

June 2019


Special Rule for Taxing Crop Insurance and Disaster Payments

Generally, cash basis farmers must include proceeds from crop insurance and federal disaster programs in gross income for the tax year during which they receive the payments. IRC § 451(f), however, provides a special deferral provision for insurance proceeds received as a result of “destruction or damage to crops.” Farmers who meet the requirements of the statute may elect to include the proceeds in gross income for the tax year following the destruction or damage. This one-year deferral protects farmers from recognizing excessive income in one year when their regular practice would have been to sell the crop in the following tax year.

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Disaster Aid Package Signed into Law, Still Few Details

On June 6, President Trump signed H.R., 2157, the $19.1 billion disaster relief bill passed by Congress. This package should provide much-needed relief for producers most impacted by recent natural disasters. The article provides a summary of provisions within this new law. As discussed, a number of questions remain regarding how this aid will be distributed and its potential impact on specific farmers.

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 IRS Issues Long-Awaited Proposed 199A Regulations for Cooperatives and Their Patrons

On June 18, 2019, IRS and Treasury issued proposed regulations for the application of IRC §199A to cooperatives and their patrons. These rules were a missing piece of the initial §199A regulatory package. Although the agencies published proposed §199A regulations (REG-107892-18) on August 16, 2018, and final rules (TD 9847) on February 8, 2019, the agencies delayed the issuance of cooperative-specific rules until June 18. IRS also posted new questions and answers relating to patrons and cooperatives on its QBI FAQ page (see questions 34 to 47).

This article details two major sections of this new guidance: (1) rules for how patrons of cooperatives calculate their §199A QBI deduction by applying a potential reduction, and (2) how Specified Cooperatives calculate and pass through the §199A(g) deduction (the new DPAD).  Both sections incorporate significant reporting requirements for cooperatives. They also contain specific requests for comments from practitioners. Future articles will look at other provisions within the proposed regulation.

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In Farmland Dispute, Iowa Supreme Court Says Father Not Vulnerable Elder

On June 21, the Iowa Supreme Court held that three siblings failed to show that their father was a “vulnerable elder” subject to elder abuse by their brother and nephew. The siblings had argued that the brother and nephew unduly influenced their father to enter into a below-market-rate farmland lease and to gift land to them. The Court, however, ruled that the evidence supported a finding that the 85-year-old father’s number one priority in his estate plan was to maintain the family farming operation beyond his lifetime. Because the brother and nephew were the only family members who pursued farming as an occupation, the transactions at issue were merely a continuation or culmination of a plan to keep the farms within the family.

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CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.

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