Proceeds For Damage to Crops is Deferrable (No Matter the Form 1099 Reporting)
We are finally starting to see the Form 1099s being issued for crop insurance proceeds. Many farmers received two types of prevent plant payments from insurance companies during 2019.
Under most crop insurance policies, a farmer could receive a prevent planting payment assuming the crop was not able to be planted by certain due dates. These payments under the Code are specifically allowed to be deferred to 2020 if the farmer meets the following conditions:
- It is the normal practice of the farmer to sell at least half of the crops covered by insurance in the year after harvest; and
- The election is for all of the crop insurance proceeds (no partial election).
As part of the Disaster Aid bill passed in the summer of 2019, Congress authorized the Risk Management Agency (RMA) to provide supplemental payments for farmers who received prevent plant payments. These supplemental payments are also considered “crop insurance” proceeds that can be deferred.
It appears the reporting of these supplement proceeds are not being shown as crop insurance proceeds on the Form 1099 by the insurance company. Instead, these proceeds are being reported as Other Income. For example, on a Rain and Hail 1099 that we reviewed, the supplemental payment was reported in Box 3 – Other income of Form 1099 with an payment type of Disaster Payment** – USDA Prevented Planting Disaster Payment (Box 3 – Other Income).
Even though it is being reported as other income, farmers should report these proceeds on the applicable crop insurance proceeds line of Schedule F and then make the election to defer the proceeds if so desired. There is no requirement to report these proceeds in the “other income” line of Schedule F.
This is similar to a farmer being paid for losses due to fire destroying their wheat crop. These proceeds would not be reported on a Form 1099 – Box 10 Crop Insurance Proceeds but still are eligible to be deferred.
The key is did the crop have damage from some type of peril – fire, hail, prevent plant from too much rain, etc..
I will be speaking at the Top Producer Conference on Tuesday, Wednesday and Thursday of this week (at least 5 sessions so far). Please make sure to say hello to me at the conference.
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.
Does the all or nothing rule apply still. So if you defer the box 10 you must also defer the box 3? If you recognize the box 10 you must also recognize the box 3? Had some clients wish to recognize the smaller box 3 payments and defer the bigger box 10 payment…..