Deferability of crop insurance proceeds requires the taxpayer to make an election on the tax return.5 The election is made by attaching a separate, signed statement to the return for the year of damage or destruction or by filing an amended return, which includes the name and address of the taxpayer along with a declaration that the taxpayer is making an election. The following should be included on the attached statement:

  • The taxpayer’s name and address along with a declaration that the taxpayer is making a deferral election
  • Identification of the specific crop or crops destroyed or damage
  • A statement that it is the taxpayer’s normal business practice to report income derived from the crops that were destroyed or damaged in the taxpayer’s gross income for a tax year following the tax year of damage or destruction. Note: On this point, the taxpayer must establish a history of reporting more than 50% of the crop sales in the subsequent year.6 If multiple crops are involved, the 50% test must be satisfied with respect to each crop.
  • A description of the cause of the destruction or damage of the crops
  • The date or dates on which the destruction or damage occurred
  • The total amount of payments received from payors such as insurance companies and government agencies (with itemization per crop and per payor).

 

Conclusion

The ability to defer crop insurance proceeds is an important planning tool for many farmers when weather interferes with normal crop production and marketing expectations. If the requirements can be satisfied, deferral can allow consistency in income tax reporting of insurance proceeds (and disaster assistance payments). Even if the technical requirements cannot be satisfied, deferral can still be accomplished if the insurance proceeds for a current year’s crop are not received until the following year.

 

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