IRS Extends Drought Relief to Farmers and Ranchers in 49 States, 2 Territories

The Internal Revenue Service recently posted a new release which reminded eligible farmers and ranchers forced to sell livestock due to drought may have an extended period of time in which to replace the livestock and defer tax on any gains from the forced sales.

The IRS posted Notice 2023-67 listing the applicable areas, a county or other jurisdiction, designated as eligible for federal assistance on IRS.gov. This includes 49 states, the District of Columbia, two U.S. Territories and two independent nations in a Compact of Free Association with the United States.  Several counties in Missouri are included in the notice such as Caldwell, Carroll, Lafayette, Ray and many more.

The relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry, are not eligible. The sales must be solely due to drought, causing an area to be designated as eligible for federal assistance.

Livestock generally must be replaced within a four-year period, instead of the usual two-year period. The IRS is authorized to further extend this replacement period if the drought continues.  The one-year extension, announced in the notice, gives eligible farmers and ranchers until the end of their first tax year after the first drought-free year to replace the sold livestock.  The IRS provides this extension to eligible farmers and ranchers that qualified for the four-year replacement period, if the applicable region is listed as suffering exceptional, extreme or severe drought conditions during any week between Sept. 1, 2022, and Aug. 31, 2023.

As a result, eligible farmers and ranchers whose drought-sale replacement period was scheduled to expire on Dec. 31, 2023, in most cases, now have until the end of their next tax year to replace the sold livestock. Because the normal drought-sale replacement period is four years, this extension impacts drought sales that occurred during 2019. The replacement periods for some drought sales before 2019 are also affected due to previous drought-related extensions affecting some of these localities.

Be sure to contact us if you have any questions or need assistance in determining how to utilize the provisions for maximum benefit.