*Leonard Dolezal Professor in Agricultural Law, Iowa State University, Ames, Iowa; Director of the Center for Agricultural Law and Taxation. Member of the IA and KS Bar Associations and licensed to practice in NE.
1For taxpayers on the accrual method, payment is taxable in the year received.
3RP utilizes Chicago Board of Trade (CBOT) futures market prices and the farmer’s actual historical yields to compute the level of revenue coverage and the
policy guarantee. The projected price is set during February in accordance with the monthly average new-crop futures prices for corn (utilizing a December futures contract) or soybeans (utilizing a November futures contract). The harvest price is pegged by averaging the new crop futures prices during October (for corn and soybeans). The revenue guarantee under the policy is computed by multiplying the greater of the projected price or harvest price by the farmer’s actual production history. That result is then multiplied by the coverage level under the policy (typically between 50 and 85 percent). GRP is policy where the guarantee and actual production history is based on county yields, with payment under the policy being the lost bushels multiplied by the February futures price. YP is a policy where the guarantee and the actual is based on farm-level yields, with the payment under the policy set at the lost bushels multiplied by the February futures price.
4I.R.S. Notice 89-55, 1989-1 C.B. 698.
5The election covers the insurance proceeds attributable to all crops representing a trade or business. Treas. Reg. §1.451-6(a)(2). Also, deferral is “all or nothing.” A taxpayer may not elect to defer only a portion of the insurance proceeds to the following year. Rev. Rul. 74-145, 1974-1, C.B. 113.
6See Nelson v. Comr., 130 T.C. 70 (2008), aff’d., 568 F.3d 662 (8th Cir. 2009).(8th Cir. 2009).