Assistance for Farmers and Ranchers dealing with the ravages of drought.
Below is the full text of IRS Notice 2016-60:
Notice 2016-60, I.R.B. 2016-42, September 30, 2016.
Livestock: Involuntary conversion: Replacement period: Extension of time for replacement.–
The IRS has provided a one-year extension of the replacement period for farmers and ranchers who were forced to sell livestock due to drought. Accordingly, farmers and ranchers in the listed areas whose drought-sale replacement period was scheduled to expire at the end of the tax year will have an extended period of time in which to replace the livestock and defer tax on any gains from the forced sales. The extension of the replacement period generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter, or held for sporting purposes and poultry are not eligible. The relief applies to any farm/ranch located in a county, parish, city or district listed, or contiguous to a county listed, as suffering from exceptional, extreme or severe drought conditions by the National Drought Mitigation Center (NDMC) during any weekly period between September 1, 2015, and August 31, 2016. All or part of 37 states and Puerto Rico are listed. Because the normal drought-sale replacement period is four years, the extension immediately impacts drought sales that occurred during 2012. But because of previous drought-related extensions affecting some of these localities, the replacement periods for some drought sales before 2012 are also affected. Additional extensions will be granted if severe drought conditions persist. Back reference: ¶29,650.127.
Extension of Replacement Period for Livestock Sold on Account of Drought
SECTION 1. PURPOSE
This notice provides guidance regarding an extension of the replacement period under §1033(e) of the Internal Revenue Code for livestock sold on account of drought in specified counties.
SECTION 2. BACKGROUND
.01 Nonrecognition of Gain on Involuntary Conversion of Livestock. Section 1033(a) generally provides for nonrecognition of gain when property is involuntarily converted and replaced with property that is similar or related in service or use. Section 1033(e)(1) provides that a sale or exchange of livestock (other than poultry) held by a taxpayer for draft, breeding, or dairy purposes in excess of the number that would be sold following the taxpayer's usual business practices is treated as an involuntary conversion if the livestock is sold or exchanged solely on account of drought, flood, or other weather-related conditions.
.02 Replacement Period. Section 1033(a)(2)(A) generally provides that gain from an involuntary conversion is recognized only to the extent the amount realized on the conversion exceeds the cost of replacement property purchased during the replacement period. If a sale or exchange of livestock is treated as an involuntary conversion under §1033(e)(1) and is solely on account of drought, flood, or other weather-related conditions that result in the area being designated as eligible for assistance by the federal government, §1033(e)(2)(A) provides that the replacement period ends four years after the close of the first taxable year in which any part of the gain from the conversion is realized. Section 1033(e)(2)(B) provides that the Secretary may extend this replacement period on a regional basis for such additional time as the Secretary determines appropriate if the weather-related conditions that resulted in the area being designated as eligible for assistance by the federal government continue for more than three years. Section 1033(e)(2) is effective for any taxable year with respect to which the due date (without regard to extensions) for a taxpayer's return is after December 31, 2002.
SECTION 3. EXTENSION OF REPLACEMENT PERIOD UNDER §1033(e)(2)(B)
Notice 2006-82, 2006-2 C.B. 529, provides for extensions of the replacement period under §1033(e)(2)(B). If a sale or exchange of livestock is treated as an involuntary conversion on account of drought and the taxpayer's replacement period is determined under §1033(e)(2)(A), the replacement period will be extended under §1033(e)(2)(B) and Notice 2006-82 until the end of the taxpayer's first taxable year ending after the first drought-free year for the applicable region. For this purpose, the first drought-free year for the applicable region is the first 12-month period that (1) ends August 31; (2) ends in or after the last year of the taxpayer's 4-year replacement period determined under §1033(e)(2)(A); and (3) does not include any weekly period for which exceptional, extreme, or severe drought is reported for any location in the applicable region. The applicable region is the county that experienced the drought conditions on account of which the livestock was sold or exchanged and all counties that are contiguous to that county.
A taxpayer may determine whether exceptional, extreme, or severe drought is reported for any location in the applicable region by reference to U.S. Drought Monitor maps that are produced on a weekly basis by the National Drought Mitigation Center. U.S. Drought Monitor maps are archived at http://droughtmonitor.unl.edu/MapsAndData/MapArchive.aspx.
In addition, Notice 2006-82 provides that the Internal Revenue Service will publish in September of each year a list of counties, districts, cities, parishes, or municipalities (hereinafter “counties”) for which exceptional, extreme, or severe drought was reported during the preceding 12 months. Taxpayers may use this list instead of U.S. Drought Monitor maps to determine whether exceptional, extreme, or severe drought has been reported for any location in the applicable region.
The Appendix to this notice contains the list of counties for which exceptional, extreme, or severe drought was reported during the 12-month period ending August 31, 2016. Under Notice 2006-82, the 12-month period ending on August 31, 2016, is not a drought-free year for an applicable region that includes any county on this list. Accordingly, for a taxpayer who qualified for a four-year replacement period for livestock sold or exchanged on account of drought and whose replacement period is scheduled to expire at the end of 2016 (or, in the case of a fiscal year taxpayer, at the end of the taxable year that includes August 31, 2016), the replacement period will be extended under §1033(e)(2) and Notice 2006-82 if the applicable region includes any county on this list. This extension will continue until the end of the taxpayer's first taxable year ending after a drought-free year for the applicable region.
SECTION 4. DRAFTING INFORMATION
The principal author of this notice is Renay France of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this notice, please contact Ms. France at (202) 317-4893 (not a toll-free call).
Counties of Baldwin, Bibb, Blount, Calhoun, Chambers, Cherokee, Clay, Cleburne, Colbert, Coosa, Cullman, DeKalb, Elmore, Etowah, Fayette, Franklin, Jackson, Jefferson, Lamar, Lauderdale, Lawrence, Lee, Limestone, Macon, Madison, Marion, Marshall, Morgan, Pickens, Randolph, Russell, Saint Clair, Shelby, Talladega, Tallapoosa, Tuscaloosa, and Walker.
Counties of Apache, Cochise, Gila, Graham, Greenlee, La Paz, Maricopa, Navajo, Pima, Pinal, Santa Cruz, and Yuma.
Counties of Arkansas, Ashley, Bradley, Calhoun, Chicot, Clark, Cleveland, Columbia, Dallas, Desha, Drew, Faulkner, Garland, Grant, Hempstead, Hot Spring, Howard, Jefferson, Lafayette, Lee, Lincoln, Little River, Lonoke, Miller, Monroe, Montgomery, Nevada, Ouachita, Perry, Phillips, Pike, Polk, Prairie, Pulaski, Saline, Scott, Sevier, Union, and Yell.
Counties of Alameda, Alpine, Amador, Butte, Calaveras, Colusa, Contra Costa, Del Norte, El Dorado, Fresno, Glenn, Humboldt, Imperial, Inyo, Kern, Kings, Lake, Lassen, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Modoc, Mono, Monterey, Napa, Nevada, Orange, Placer, Plumas, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Shasta, Sierra, Siskiyou, Solano, Sonoma, Stanislaus, Sutter, Tehama, Trinity, Tulare, Tuolumne, Ventura, Yolo, and Yuba.
County of Baca.
Counties of Hartford, Litchfield, Tolland, and Windham.
Counties of Broward, Collier, Escambia, Miami-Dade, Monroe, and Palm Beach.
Counties of Baldwin, Banks, Barrow, Bartow, Bibb, Bleckley, Bulloch, Burke, Butts, Candler, Carroll, Catoosa, Chattooga, Cherokee, Clarke, Clayton, Cobb, Coweta, Crawford, Dade, Dawson, DeKalb, Douglas, Effingham, Elbert, Emanuel, Fannin, Fayette, Floyd, Forsyth, Franklin, Fulton, Gilmer, Gordon, Greene, Gwinnett, Habersham, Hall, Haralson, Harris, Hart, Heard, Henry, Houston, Jackson, Jasper, Jenkins, Lamar, Laurens, Lincoln, Lumpkin, Madison, Meriwether, Monroe, Morgan, Murray, Muscogee, Newton, Oconee, Oglethorpe, Paulding, Peach, Pickens, Pike, Polk, Pulaski, Putnam, Rabun, Rockdale, Screven, Spalding, Stephens, Talbot, Taliaferro, Towns, Troup, Twiggs, Union, Upson, Walker, Walton, Washington, White, Whitfield, Wilkes, and Wilkinson.
Counties of Hawaii, Kauai, and Maui.
Counties of Adams, Benewah, Blaine, Boise, Bonner, Boundary, Butte, Camas, Canyon, Clark, Clearwater, Custer, Elmore, Fremont, Gem, Gooding, Idaho, Jefferson, Jerome, Kootenai, Latah, Lemhi, Lewis, Lincoln, Minidoka, Nez Perce, Owyhee, Payette, Shoshone, Twin Falls, Valley, and Washington.
Counties of Barber, Comanche, and Morton.
Parishes of Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Bienville, Bossier, Caddo, Calcasieu, Caldwell, Catahoula, Claiborne, Concordia, De Soto, East Baton Rouge, East Carroll, East Feliciana, Evangeline, Franklin, Grant, Iberia, Iberville, Jackson, Jefferson Davis, Jefferson, La Salle, Lafayette, Lincoln, Livingston, Madison, Morehouse, Natchitoches, Ouachita, Pointe Coupee, Rapides, Red River, Richland, Sabine, Saint Charles, Saint Helena, Saint James, Saint John the Baptist, Saint Landry, Saint Martin, Saint Tammany, Tangipahoa, Tensas, Union, Vermilion, Vernon, Washington, Webster, West Baton Rouge, West Carroll, West Feliciana, and Winn.
Counties of Androscoggin, Cumberland, Kennebec, Knox, Lincoln, Sagadahoc, and York.
Counties of Barnstable, Bristol, Essex, Franklin, Hampden, Hampshire, Middlesex, Norfolk, Plymouth, Suffolk, and Worcester.
Counties of Genesee, Shiawassee, and Wayne.
Counties of Big Stone, Douglas, Grant, Otter Tail, Traverse, and Wilkin.
Counties of Adams, Amite, Attala, Bolivar, Calhoun, Carroll, Chickasaw, Choctaw, Claiborne, Clay, Coahoma, Copiah, Covington, Forrest, Franklin, Grenada, Hinds, Holmes, Humphreys, Issaquena, Itawamba, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lafayette, Lamar, Lauderdale, Lawrence, Leake, Lee, Leflore, Lincoln, Lowndes, Madison, Marion, Monroe, Montgomery, Neshoba, Newton, Noxubee, Oktibbeha, Panola, Pearl River, Pike, Pontotoc, Prentiss, Quitman, Rankin, Scott, Sharkey, Simpson, Smith, Stone, Sunflower, Tallahatchie, Tishomingo, Tunica, Union, Walthall, Warren, Washington, Webster, Wilkinson, Winston, Yalobusha, and Yazoo.
Counties of Beaverhead, Big Horn, Broadwater, Carbon, Carter, Cascade, Deer Lodge, Fallon, Flathead, Gallatin, Glacier, Granite, Jefferson, Lake, Lewis and Clark, Lincoln, Madison, Mineral, Missoula, Park, Pondera, Powder River, Powell, Ravalli, Sanders, Silver Bow, Stillwater, Sweet Grass, Teton, Toole, and Yellowstone.
Counties of Adams, Clay, Franklin, Kearney, and Webster.
Counties of Carson City, Churchill, Clark, Douglas, Elko, Esmeralda, Eureka, Humboldt, Lander, Lincoln, Lyon, Mineral, Nye, Pershing, Storey, Washoe, and White Pine.
Counties of Belknap, Cheshire, Hillsborough, Merrimack, Rockingham, and Strafford.
Counties of Lea, Roosevelt, and Union.
Counties of Allegany, Broome, Cattaraugus, Cayuga, Chautauqua, Chemung, Cortland, Erie, Genesee, Jefferson, Lewis, Livingston, Monroe, Niagara, Onondaga, Ontario, Orleans Oswego, Schuyler, Seneca, Steuben, Suffolk, Tioga, Tompkins, Wayne, Wyoming, and Yates.
Counties of Alexander, Buncombe, Burke, Caldwell, Catawba, Cherokee, Clay, Cleveland, Gaston, Graham, Haywood, Henderson, Iredell, Jackson, Lincoln, Macon, Madison, McDowell, Mecklenburg, Polk, Rutherford, Swain, Transylvania, Union, and Yancey.
Counties of Bowman, Richland, and Slope.
Counties of Allen, Ashland, Auglaize, Champaign, Clark, Crawford, Cuyahoga, Erie, Geauga, Hancock, Hardin, Holmes, Huron, Lake, Logan, Lorain, Madison, Marion, Mercer, Miami, Morrow, Richland, Seneca, Shelby, Union, Van Wert, Wayne, Wood, and Wyandot.
Counties of Atoka, Beckham, Bryan, Carter, Cherokee, Choctaw, Cimarron, Comanche, Cotton, Ellis, Garvin, Greer, Harmon, Harper, Jackson, Jefferson, Johnston, Kiowa, Le Flore, Love, Marshall, McCurtain, Murray, Muskogee, Pontotoc, Pushmataha, Roger Mills, Stephens, Texas, Tillman, Wagoner, Woods, and Woodward.
Counties of Baker, Benton, Clackamas, Clatsop, Columbia, Coos, Crook, Curry, Deschutes, Douglas, Gilliam, Grant, Harney, Hood River, Jackson, Jefferson, Josephine, Klamath, Lake, Lane, Lincoln, Linn, Malheur, Marion, Morrow, Multnomah, Polk, Sherman, Tillamook, Umatilla, Union, Wallowa, Wasco, Washington, Wheeler, and Yamhill.
Counties of Bradford, Cameron, Centre, Clearfield, Clinton, Elk, Erie, Lycoming, McKean, Potter, Susquehanna, and Tioga.
Municipios (municipalities) of Aguas Buenas, Aibonito, Arroyo, Barranquitas, Bayamon, Caguas, Canovanas, Carolina, Catano, Cayey, Ceiba, Cidra, Coamo, Comerio, Corozal, Culebra, Dorado, Fajardo, Guayama, Guaynabo, Gurabo, Humacao, Juncos, Las Piedras, Loiza, Luquillo, Manati, Maunabo, Morovis, Naguabo, Naranjito, Orocovis, Patillas, Rio Grande, Salinas, San Juan, San Lorenzo, Santa Isabel, Toa Alta, Toa Baja, Trujillo Alto, Vega Alta, Vega Baja, Vieques, and Yabucoa.
County of Providence.
Counties of Abbeville, Allendale, Anderson, Bamberg, Barnwell, Berkeley, Calhoun, Cherokee, Chester, Chesterfield, Clarendon, Colleton, Darlington, Dorchester, Edgefield, Fairfield, Florence, Greenville, Greenwood, Hampton, Jasper, Kershaw, Lancaster, Lee, Lexington, McCormick, Oconee, Orangeburg, Pickens, Richland, Saluda, Spartanburg, Sumter, Union, Williamsburg, and York.
Counties of Butte, Custer, Fall River, Harding, Lawrence, Meade, Pennington, Perkins, and Roberts.
Counties of Bedford, Bledsoe, Blount, Bradley, Coffee, Cumberland, Franklin, Giles, Grundy, Hamilton, Hardin, Lawrence, Lincoln, Loudon, Marion, Marshall, Maury, McMinn, Meigs, Monroe, Moore, Polk, Rhea, Roane, Sequatchie, Van Buren, and Warren.
Counties of Anderson, Angelina, Archer, Atascosa, Bandera, Bastrop, Baylor, Bell, Bexar, Blanco, Bosque, Bowie, Brazos, Brown, Burleson, Burnet, Caldwell, Callahan, Camp, Cass, Castro, Cherokee, Childress, Clay, Cochran, Coke, Coleman, Collin, Comal, Comanche, Concho, Cooke, Coryell, Cottle, Crosby, Dallas, Deaf Smith, Delta, Denton, DeWitt, Dickens, Dimmit, Eastland, Ellis, Erath, Falls, Fannin, Fayette, Fisher, Floyd, Foard, Franklin, Freestone, Frio, Garza, Gillespie, Gonzales, Grayson, Gregg, Grimes, Guadalupe, Hale, Hamilton, Hardeman, Harrison, Haskell, Hays, Hemphill, Henderson, Hill, Hockley, Hood, Hopkins, Houston, Hunt, Jack, Jasper, Johnson, Jones, Karnes, Kaufman, Kendall, Kent, Kerr, Kimble, King, Kinney, Kleberg, Knox, La Salle, Lamar, Lampasas, Lavaca, Lee, Leon, Limestone, Lipscomb, Live Oak, Llano, Lubbock, Madison, Marion, Mason, Maverick, McCulloch, McLennan, McMullen, Medina, Menard, Milam, Mills, Mitchell, Montague, Montgomery, Morris, Motley, Nacogdoches, Navarro, Newton, Nolan, Nueces, Palo Pinto, Panola, Parker, Polk, Rains, Red River, Robertson, Rockwall, Runnels, Rusk, Sabine, San Augustine, San Jacinto, San Patricio, San Saba, Schleicher, Scurry, Shackelford, Shelby, Smith, Somervell, Stephens, Sterling, Stonewall, Sutton, Tarrant, Taylor, Terrell, Terry, Throckmorton, Titus, Tom Green, Travis, Trinity, Tyler, Upshur, Uvalde, Val Verde, Van Zandt, Walker, Washington, Webb, Wheeler, Wichita, Wilbarger, Williamson, Wilson, Wise, Wood, Yoakum, Young, and Zavala.
Counties of Beaver, Box Elder, Carbon, Davis, Duchesne, Juab, Millard, Piute, Salt Lake, Sanpete, Sevier, Summit, Tooele, Utah, Wasatch, and Weber.
Counties of Adams, Asotin, Benton, Chelan, Clallam, Clark, Columbia, Cowlitz, Douglas, Ferry, Franklin, Garfield, Grant, Grays Harbor, Island, Jefferson, King, Kitsap, Kittitas, Klickitat, Lewis, Lincoln, Mason, Okanogan, Pacific, Pend Oreille, Pierce, San Juan, Skagit, Skamania, Snohomish, Spokane, Stevens, Thurston, Wahkiakum, Walla Walla, Whatcom, Whitman, and Yakima.
Counties of Big Horn, Campbell, Converse, Crook, Johnson, Natrona, Niobrara, Park, Sheridan, Teton, Washakie, and Weston.
JOHN TRAPANI, CPA assists both taxpayers directly and
advises taxpayers’ tax professionals.
This material was contributed by John Trapani. A Certified Public Accountant who has assisted taxpayers since 1976, in analyzing and reporting transactions of the type covered in this material.
© 2016, John Trapani, CPA,
All rights to reproduce or quote any part of the chapter in any other publication are reserved by the author. Republication rights limited by the publisher of the book in which this chapter appears also apply.
Certified Public Accountant
2975 E. Hillcrest Drive, #403
Thousand Oaks, CA 91362
(805) 497-4411 E-mail John@TrapaniCPA.com
It All Adds Up For You
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Any accounting, business or tax advice contained in this communication, is not intended as a thorough, in-depth analysis of a specific issue, nor a substitute for a formal opinion, nor can it be considered sufficient to avoid tax-related penalties. If desired, John Trapani, CPA would be pleased to perform the requisite complete research and provide with a detailed written analysis.
This material was completed on the date of the posting
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