News & Resources

Defer Crop Insurance Proceeds

As you begin the early harvest season as a result of the drought conditions encountered this crop year, we want to make you aware of a tax planning option that may be available to you regarding the receipt of crop insurance proceeds.

With the hot weather and minimal rain our area has received during this crop growing season, it is likely that yields are not going to be where they have been the last few years. As a result, many of you could be receiving rather sizeable crop insurance payouts this year. Internal Revenue Code Section 451 permits operators to defer the reporting of the 2012 crop year insurance proceeds received in 2012 until 2013 if you choose, so long as the requirements outlined below are met.

Requirements to Defer Crop Insurance Proceeds Until the Following Tax Year:

  1. The operator must report income on the cash method of accounting.
  2. The crop insurance proceeds must be received in the same year the crops are destroyed
  3. The operator must be able to show that at least 50% of the current crop year income is normally reported in the following year.

If these tests are all met, the operator has the option to report the insurance proceeds as income on the 2012 income tax return or the 2013 income tax return.

If the desire is to defer the reporting of crop insurance proceeds received in 2012 until the 2013 tax year, an election must be made and filed with your 2012 income tax return. This election must include your name and address, a statement that you are making an election under section 451(d) of the Internal Revenue Code and Regulations section 1.451-6, the specific crop or crops destroyed or damaged, a statement that under normal business practices you would have included the income from the destroyed or damaged crops in the following tax year, the cause of the destruction or damage and the date it occurred, the total payments received from insurance carriers itemized for each crop and the date the payment was received, and the name of each insurance carrier from whom crop insurance payments were received.

The election to defer the reporting of crop insurance proceeds received in 2012 until the 2013 tax year covers all crops of a single trade or business. If the election to defer crop insurance proceeds is made, ALL payments received must be deferred until the 2013 tax year, a portion cannot be allocated between the 2012 tax year and the 2013 tax year.

If crop insurance proceeds related to the 2012 crop year are not received until 2013, those proceeds must be included in 2013 income. There is no option to defer the proceeds any further than one year.

If you have questions regarding this option to defer the reporting of crop insurance proceeds received in 2012, please feel free to contact one of our professionals here at Pritchard Osborne.

September 03, 2012

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