Weather-Related Sales of LivestockWeather-Related Sales of Livestock Special Income Tax reporting may be Special Income Tax reporting may be

available foravailable for Sales in excess of normal business practiceSales in excess of normal business practice Caused by weather-related conditionsCaused by weather-related conditions

• DroughtDrought• FloodFlood• Other conditions causing a shortage of water and/or Other conditions causing a shortage of water and/or

feedfeed

Special rules depend onSpecial rules depend on Whether market or breeding livestockWhether market or breeding livestock Whether disaster declaration issuedWhether disaster declaration issued

Involuntary ConversionInvoluntary ConversionInternal Revenue Code Sec. 1033(e)Internal Revenue Code Sec. 1033(e)

Applies to breeding, dairy or draft livestockApplies to breeding, dairy or draft livestock No holding period requirementNo holding period requirement Does Does notnot apply to livestock held in the ordinary apply to livestock held in the ordinary

course of trade or business (Market Livestock)course of trade or business (Market Livestock)

Reporting gain Reporting gain postponedpostponed by purchasing by purchasing replacement animalsreplacement animals Replacement period runs 2 years from Replacement period runs 2 years from endend of sale of sale

tax yeartax year

Deferral of gain based on Deferral of gain based on sale $ per headsale $ per head

No federal disaster declaration neededNo federal disaster declaration needed

Sec. 1033(e) Special RulesSec. 1033(e) Special Rules

Replacement period is 4 years if weather Replacement period is 4 years if weather conditions lead to federal disaster conditions lead to federal disaster declarationdeclaration Replacement period can be further extended by Replacement period can be further extended by

IRS in cases of on-going droughtIRS in cases of on-going drought

Replacements must be Replacements must be like uselike use If sale conditions If sale conditions alsoalso make like use make like use

replacement impossible, replacement can be replacement impossible, replacement can be made with made with anyany property property

NoNo disaster declaration required to replace with disaster declaration required to replace with unlike property if like-use replacement unlike property if like-use replacement preventedprevented

1 Year Deferral of Income1 Year Deferral of Income Election made under Internal Revenue Election made under Internal Revenue

Code Sec. 451(e) Code Sec. 451(e)

Applies to Applies to all livestockall livestock (market (market andand breeding, dairy, draft)breeding, dairy, draft)

TaxpayerTaxpayer Principal business must be farmingPrincipal business must be farming Must use cash method of accountingMust use cash method of accounting

Weather-related conditions must also Weather-related conditions must also cause federal disaster declarationcause federal disaster declaration

Making an ElectionMaking an Election

Internal Revenue Code Sec. 451(e)Internal Revenue Code Sec. 451(e) Election must be made by due date of return, Election must be made by due date of return,

including extensions, for the sale yearincluding extensions, for the sale year Election can be revoked, but cannot be made on Election can be revoked, but cannot be made on

an amended returnan amended return

Internal Revenue Code Sec. 1033(e)Internal Revenue Code Sec. 1033(e) Election can be made any time during Election can be made any time during

replacement period (2 years, or 4 years)replacement period (2 years, or 4 years) If election revoked, gain must be reported in If election revoked, gain must be reported in

year of saleyear of sale

Animals Eligible forAnimals Eligible forEither ElectionEither Election

Animals (breeding, dairy, draft) eligible for Animals (breeding, dairy, draft) eligible for either election (Federal disaster declaration)either election (Federal disaster declaration)

Special rules permit revocation of Sec. Special rules permit revocation of Sec. 1033(e) election and adoption of Sec. 451(e) 1033(e) election and adoption of Sec. 451(e) election during 4-year replacement periodelection during 4-year replacement period Allows election of one-year reporting deferral Allows election of one-year reporting deferral

(reporting in year following sale year) on amended (reporting in year following sale year) on amended returnreturn

Permits avoidance of reporting in sale year if Sec. Permits avoidance of reporting in sale year if Sec. 1033 (e) election made, and replacement 1033 (e) election made, and replacement subsequently deemed impracticalsubsequently deemed impractical