Form 1099-G Does Not Always Require Schedule F Reporting
We got the following question from a reader:
“Let’s say I receive a 1099-G for the livestock indemnity program due to older cows that died in the Atlas Blizzard. If I would have sold the cows as culls, I would have put them as long-term on my 4797. Due to the fact that they died and the USDA paid me, am I obligated to now put that on a Schedule F and pay SE tax whereas I would have avoided that had I sold them alive?”
Many times farmers will receive a Form 1099-G or 1099-PATR that reports information that the IRS computers expect to see on a certain line on Schedule F. Many tax preparers assume that they are required to report the income on those lines and that is the end of the process. The correct procedure is to report this income on those appropriate lines so the IRS computer will match it up properly and then usually adjust out the correct amount as a negative item on the other income line on Schedule F.
For example, assume this livestock producer received $75,000 under the Livestock Indemnity Program (LIP) of which $50,000 related to breeding stock that had been held for at least two years. The full $75,000 should be reported on line 4(a) and 4(b) of Schedule F and then report a negative adjustment of $50,000 on line 8 (Other income). You would label this as “Amount properly reported on Form 4797” or similar verbiage.
The key thing to remember is just because USDA or a cooperative issues a Form 1099 does not mean the income has to be fully reported on Schedule F and subject to full self-employment tax. The Form 1099-G is simply reporting a payment from USDA to the producer. It does not know how it should be taxed, but the IRS computer does want to see it on line 4(a) no matter what. We just need to take the next step and adjust Schedule F for whatever income needs to be reported on some other form.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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