The Impact of Income Tax Laws on the Sales of Livestock During Periods of Severe Drought

Abstract

Livestock producers were forced to sell their cattle and other livestock due to the drought conditions in 2008. These involuntary sales created significant income tax liabilities for the producers. However, in certain situations the producer can take advantage of relief provisions in the Internal Revenue Code which were enacted to reduce or eliminate these potential negative tax consequences. Some involuntary sales may qualify for tax deferral for at least one year and potentially a much longer period. Whether these tax provisions will provide any benefit to a producer depends on a detailed analysis of the specific circumstances of each case. This paper examines in detail the relevant tax laws including the Internal Revenue Code, Treasury Regulations, Internal Revenue Service rulings, and case law to determine whether there are ambiguities in the relevant laws that, when compared to other tax laws with similar purposes, could cause uncertainty in the application of these laws to common situations. The paper also sets forth the issues that should be considered when determining whether these tax laws will provide any benefit to a particular livestock producer. Based on a review of the existing laws and a comparison with other similar provisions, there are at least a few items that need clarification in order to provide the same level of clarity and certainty that exists with other provisions of tax law.