Notice 2024-70: Farmers, ranchers affected by drought allowed more time to replace livestock

The IRS today released Notice 2024-70 providing tax relief for farmers and ranchers in applicable regions forced to sell or exchange livestock because of drought conditions.

Notice 2024-70 contains a list of applicable areas, by county or other jurisdiction, designated as eligible for federal assistance. The list includes 41 states and other regions for which drought was reported during the 12-month period ending on August 31, 2024.

Background

The IRS 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.

To qualify, the sales must be solely due to drought, flooding or other severe weather causing the region to be designated as eligible for federal assistance. Under these circumstances, livestock generally must be replaced within a four-year period—instead of the usual two-year period. In addition, the IRS is authorized to further extend this replacement period if the drought continues. The one-year extension, announced today, gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock. Details, including an example, are provided in prior IRS guidance, Notice 2006-82.

Notice 2006-82 further announced that the IRS would publish in September of each year a list of counties, districts, cities or parishes for which exceptional, extreme or severe drought was reported during the preceding 12 months. Taxpayers may use this list to determine whether they qualify for a four-year replacement period for livestock sold or exchanged on account of drought and whose replacement period is scheduled to expire at the end of 2024 (or for a fiscal year taxpayer, at the end of the tax year that includes August 31, 2024).

Relief measures

According to a related IRS release—IR-2024-248 (September 30, 2024):

• The relief generally applies to capital gains realized by eligible farmers and ranchers on sales or exchanges 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 replacement period extension announced in the notice gives eligible farmers and ranchers four years until the end of their first tax year after the first drought-free year to replace the sold or exchanged livestock. As a result, eligible farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of 2024 will have until the end of their next tax year to replace the sold or exchanged livestock.
• The IRS provides this extension to eligible farmers and ranchers if the applicable region is listed as suffering exceptional, extreme or severe drought conditions during any week between September 1, 2023, and August 31, 2024.

For more information, contact a KPMG tax professional in Washington National Tax:

Vish Amin | vamin@kpmg.com