Taxation of crop insurance and disaster payments
Abstract
"Weather variability is one of the largest sources of risk in agricultural production (see Figure 1). Congress has recognized the impact of weather variability on crop production and the resulting variability to farm income by implementing a special tax provision. Internal Revenue Code (IRC) Section 451(d) provides that, under certain circumstances, crop producers reporting on the cash method of accounting may elect to include crop insurance and disaster payments in income of the tax year following the taxable year of crop destruction or damage. To qualify for this election, the taxpayer must establish that the income from the destroyed or damaged crop would have been included in income for a taxable year following the year of destruction or damage under his or her normal business practices. Additionally, crop disaster program payments received from the federal government qualify for the IRC Section 451(d) election if a natural disaster prevented a farmer from planting crops, or it destroyed or damaged crops that had already been planted."--First page.
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