Internal Revenue Code:Sec. 464. Limitations on deductions for certain farming

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Contents


Location in Internal Revenue Code


     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 1 - NORMAL TAXES AND SURTAXES
        Subchapter E - Accounting Periods and Methods of Accounting
         PART II - METHODS OF ACCOUNTING
          Subpart C - Taxable Year for Which Deductions Taken
        

Statute

    Sec. 464. Limitations on deductions for certain farming
 
    (a) General rule
      In the case of any farming syndicate (as defined in subsection
    (c)), a deduction (otherwise allowable under this chapter) for
    amounts paid for feed, seed, fertilizer, or other similar farm
    supplies shall only be allowed for the taxable year in which such
    feed, seed, fertilizer, or other supplies are actually used or
    consumed, or, if later, for the taxable year for which allowable as
    a deduction (determined without regard to this section).
    (b) Certain poultry expenses
      In the case of any farming syndicate (as defined in subsection
    (c)) -
        (1) the cost of poultry (including egg-laying hens and baby
      chicks) purchased for use in a trade or business (or both for use
      in a trade or business and for sale) shall be capitalized and
      deducted ratably over the lesser of 12 months or their useful
      life in the trade or business, and
        (2) the cost of poultry purchased for sale shall be deducted
      for the taxable year in which the poultry is sold or otherwise
      disposed of.
    (c) Farming syndicate defined
      (1) In general
        For purposes of this section, the term ''farming syndicate''
      means -
          (A) a partnership or any other enterprise other than a
        corporation which is not an S corporation engaged in the trade
        or business of farming, if at any time interests in such
        partnership or enterprise have been offered for sale in any
        offering required to be registered with any Federal or State
        agency having authority to regulate the offering of securities
        for sale, or
          (B) a partnership or any other enterprise other than a
        corporation which is not an S corporation engaged in the trade
        or business of farming, if more than 35 percent of the losses
        during any period are allocable to limited partners or limited
        entrepreneurs.
      (2) Holdings attributable to active management
        For purposes of paragraph (1)(B), the following shall be
      treated as an interest which is not held by a limited partner or
      a limited entrepreneur:
          (A) in the case of any individual who has actively
        participated (for a period of not less than 5 years) in the
        management of any trade or business of farming, any interest in
        a partnership or other enterprise which is attributable to such
        active participation,
          (B) in the case of any individual whose principal residence
        is on a farm, any partnership or other enterprise engaged in
        the trade or business of farming such farm,
          (C) in the case of any individual who is actively
        participating in the management of any trade or business of
        farming or who is an individual who is described in
        subparagraph (A) or (B), any participation in the further
        processing of livestock which was raised in such trade or
        business (or in the trade or business referred to in
        subparagraph (A) or (B)),
          (D) in the case of an individual whose principal business
        activity involves active participation in the management of a
        trade or business of farming, any interest in any other trade
        or business of farming, and,
          (E) any interest held by a member of the family (or a spouse
        of any such member) or a grandparent of an individual described
        in subparagraph (A), (B), (C), or (D) if the interest in the
        partnership or the enterprise is attributable to the active
        participation of the individual described in subparagraph (A),
        (B), (C), or (D).
      For purposes of subparagraph (A), where one farm is substituted
      for or added to another farm, both farms shall be treated as one
      farm.  For purposes of subparagraph (E), the term ''family'' has
      the meaning given to such term by section 267(c)(4).
    (d) Exception
      Subsection (a) shall not apply to any amount paid for supplies
    which are on hand at the close of the taxable year on account of
    fire, storm, or other casualty, or on account of disease or
    drought.
    (e) Definitions
      For purposes of this section -
      (1) Farming
        The term ''farming'' means the cultivation of land or the
      raising or harvesting of any agricultural or horticultural
      commodity including the raising, shearing, feeding, caring for,
      training, and management of animals.  For purposes of the
      preceding sentence, trees (other than trees bearing fruit or
      nuts) shall not be treated as an agricultural or horticultural
      commodity.
      (2) Limited entrepreneur
        The term ''limited entrepreneur'' means a person who -
          (A) has an interest in an enterprise other than as a limited
        partner, and
          (B) does not actively participate in the management of such
        enterprise.
    (f) Subsections (a) and (b) to apply to certain persons prepaying
        50 percent or more of certain farming expenses
      (1) In general
        In the case of a taxpayer to whom this subsection applies,
      subsections (a) and (b) shall apply to the excess prepaid farm
      supplies of such taxpayer in the same manner as if such taxpayer
      were a farming syndicate.
      (2) Taxpayer to whom subsection applies
        This subsection applies to any taxpayer for any taxable year if
      such taxpayer -
          (A) does not use an accrual method of accounting,
          (B) has excess prepaid farm supplies for the taxable year,
        and
          (C) is not a qualified farm-related taxpayer.
      (3) Qualified farm-related taxpayer
        (A) In general
          For purposes of this subsection, the term ''qualified
        farm-related taxpayer'' means any farm-related taxpayer if -
            (i)(I) the aggregate prepaid farm supplies for the 3
          taxable years preceding the taxable year are less than 50
          percent of,
            (II) the aggregate deductible farming expenses (other than
          prepaid farm supplies) for such 3 taxable years, or
            (ii) the taxpayer has excess prepaid farm supplies for the
          taxable year by reason of any change in business operation
          directly attributable to extraordinary circumstances.
        (B) Farm-related taxpayer
          For purposes of this paragraph, the term ''farm-related
        taxpayer'' means any taxpayer -
            (i) whose principal residence (within the meaning of
          section 121) is on a farm,
            (ii) who has a principal occupation of farming, or
            (iii) who is a member of the family (within the meaning of
          subsection (c)(2)(E)) of a taxpayer described in clause (i)
          or (ii).
      (4) Definitions
        For purposes of this subsection -
        (A) Excess prepaid farm supplies
          The term ''excess prepaid farm supplies'' means the prepaid
        farm supplies for the taxable year to the extent the amount of
        such supplies exceeds 50 percent of the deductible farming
        expenses for the taxable year (other than prepaid farm
        supplies).
        (B) Prepaid farm supplies
          The term ''prepaid farm supplies'' means any amounts which
        are described in subsection (a) or (b) and would be allowable
        for a subsequent taxable year under the rules of subsections
        (a) and (b).
        (C) Deductible farming expenses
          The term ''deductible farming expenses'' means any amount
        allowable as a deduction under this chapter (including any
        amount allowable as a deduction for depreciation or
        amortization) which is properly allocable to the trade or
        business of farming.
    (g) Termination
      Except as provided in subsection (f), subsections (a) and (b)
    shall not apply to any taxable year beginning after December 31,
    1986.
 

Sources

    (Added Pub. L. 94-455, title II, Sec. 207(a)(1), Oct. 4, 1976, 90
    Stat. 1536; amended Pub. L. 95-600, title VII, Sec. 701(l)(3), Nov.
    6, 1978, 92 Stat. 2907; Pub. L. 97-354, Sec. 5(a)(30), Oct. 19,
    1982, 96 Stat. 1695; Pub. L. 99-514, title IV, Sec. 404(a), (b)(1),
    title VIII, Sec. 803(b)(8), Oct. 22, 1986, 100 Stat. 2223, 2224,
    2356; Pub. L. 100-647, title I, Sec. 1008(a)(4), Nov. 10, 1988, 102
    Stat. 3437; Pub. L. 105-34, title III, Sec. 312(d)(1), Aug. 5,
    1997, 111 Stat. 839.)
 

Miscellaneous

                                 AMENDMENTS
      1997 - Subsec. (f)(3)(B)(i). Pub. L. 105-34 substituted ''section
    121'' for ''section 1034''.
      1988 - Subsec. (g). Pub. L. 100-647 added subsec. (g).
      1986 - Pub. L. 99-514, Sec. 404(b)(1), substituted ''for certain
    farming'' for ''in case of farming syndicates'' in section
    catchline.
      Subsec. (d). Pub. L. 99-514, Sec. 803(b)(8), substituted
    ''Exception'' for ''Exceptions'' as heading and amended text
    generally.  Prior to amendment, text read as follows: ''Subsection
    (a) shall not apply to -
        ''(1) any amount paid for supplies which are on hand at the
      close of the taxable year on account of fire, storm, flood, or
      other casualty or on account of disease or drought, or
        ''(2) any amount required to be charged to capital account
      under section 278.''
      Subsec. (f). Pub. L. 99-514, Sec. 404(a), added subsec. (f).
      1982 - Subsec. (c)(1)(A), (B). Pub. L. 97-354 substituted ''an S
    corporation'' for ''an electing small business corporation (as
    defined in section 1371(b))''.
      1978 - Subsec. (c)(2). Pub. L. 95-600 substituted in subpar. (E)
    ''(or a spouse of any such member)'' for ''(within the meaning of
    section 267(c)(4))'' and provided that for purposes of subpar. (E)
    the term ''family'' has the meaning given to such term by section
    267(c)(4).
                      EFFECTIVE DATE OF 1997 AMENDMENT
      Amendment by Pub. L. 105-34 applicable to sales and exchanges
    after May 6, 1997, with certain exceptions, see section 312(d) of
    Pub. L. 105-34, set out as a note under section 121 of this title.
                      EFFECTIVE DATE OF 1988 AMENDMENT
      Amendment by Pub. L. 100-647 effective, except as otherwise
    provided, as if included in the provision of the Tax Reform Act of
    1986, Pub. L. 99-514, to which such amendment relates, see section
    1019(a) of Pub. L. 100-647, set out as a note under section 1 of
    this title.
                      EFFECTIVE DATE OF 1986 AMENDMENT
      If any interest costs incurred after Dec. 31, 1986, are
    attributable to costs incurred before Jan. 1, 1987, the amendment
    by section 803(b)(8) of Pub. L. 99-514 is applicable to such
    interest costs only to the extent such interest costs are
    attributable to costs which were required to be capitalized under
    section 263 of the Internal Revenue Code of 1954 and which would
    have been taken into account in applying section 189 of the
    Internal Revenue Code of 1954 (as in effect before its repeal by
    section 803 of Pub. L. 99-514) or, if applicable, section 266 of
    such Code, see section 7831(d)(2) of Pub. L. 101-239, set out as an
    Effective Date note under section 263A of this title.
      Section 404(c) of Pub. L. 99-514 provided that: ''The amendments
    made by this section (amending this section) shall apply to amounts
    paid or incurred after March 1, 1986, in taxable years beginning
    after such date.''
      Amendment by section 803(b)(8) of Pub. L. 99-514 applicable to
    costs incurred after Dec. 31, 1986, in taxable years ending after
    such date, except as otherwise provided, see section 803(d) of Pub.
    L. 99-514, set out as an Effective Date note under section 263A of
    this title.
                      EFFECTIVE DATE OF 1982 AMENDMENT
      Amendment by Pub. L. 97-354 applicable to taxable years beginning
    after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
    an Effective Date note under section 1361 of this title.
                      EFFECTIVE DATE OF 1978 AMENDMENT
      Amendment by Pub. L. 95-600 effective as if included in this
    section or section 447 of this title at the time of their
    enactment, Oct. 4, 1976, see section 701(l)(4) of Pub. L. 95-600,
    set out as a note under section 447 of this title.
                               EFFECTIVE DATE
      Section 207(a)(3) of Pub. L. 94-455 provided that:
      ''(A) In general. - Except as provided in subparagraph (B), the
    amendments made by this subsection (enacting this section) shall
    apply to taxable years beginning after December 31, 1975.
      ''(B) Transitional rule. - In the case of a farming syndicate in
    existence on December 31, 1975, and for which there was no change
    of membership throughout its taxable year beginning in 1976, the
    amendments made by this subsection shall apply to taxable years
    beginning after December 31, 1976.''
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 58, 461, 465, 1256, 1258
    of this title.
 

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