Farmers Get More Time to Sell Livestock Because of Drought | AccountingWEB

Farmers Get More Time to Sell Livestock Because of Drought

The Internal Revenue Service (IRS) is granting farmers affected by exceptional, extreme or severe drought conditions additional time to purchase replacement property for livestock they were forced to sell. A list of counties that experienced exceptional, extreme, or severe drought for the 12-month period ending on August 31, 2006, will be compiled in consultation with the National Drought Mitigation Center and published this month.

When drought conditions result in an area being declared eligible for assistance by the federal government, taxpayers ordinarily have four years to replace – without recognizing any capital gain – the livestock that they were forced to sell because of the drought. For this purpose, the livestock in question must have been held for draft, breeding or dairy purposes.

Because of the intense, prolonged drought in parts of the U.S., the IRS is providing additional time to replace livestock that was sold as a result of drought. Notice 2006-82 explains how a taxpayer can determine whether additional time is available. For example, the four-year replacement period scheduled to end on December 31, 2006, is extended for one additional year, if, for any weekly period included in the 12-month period ending on August 31, 2006, severe, extreme, or exceptional drought conditions were reported for any location in the county that experienced the drought that forced the sale of the livestock or for any location in a neighboring county. The replacement period may be further extended if the drought conditions persist after August 31, 2006.

Taxpayers also may determine whether a county has experienced exceptional, extreme, or severe drought conditions by referencing Drought Monitor maps produced by the National Drought Mitigation Center. For example, in determining whether the 12-month period ending on August 31, 2006, includes a period for which drought conditions are reported, all maps with dates after August 31, 2005, and before September 8, 2006, are taken into account.

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