Tax News

CCH (cch.taxgroup.com) reports:

  The IRS and Treasury issued final, proposed and temporary regulations under Code Sec. 1301 relating to the averaging of farm and fishing income in computing income tax liability. The regulations reflect changes to the law made by the American Jobs Creation Act of 2004 (P.L. 108-357) and provide guidance to individuals engaged in a farming or fishing business who elect to reduce their liability by treating all or a portion of the current tax year's farm or fishing income as if one-third of it had been earned in each of the prior three tax years.

  The definition of "fishing business" in the temporary regulations follows the definition in the Magnuson-Stevens Fishery Conservation and Management Act and the regulations under that Act. Thus, fishing includes catching, taking, or harvesting activities that result in the killing of fish or the bringing of live fish on board a vessel, but does not include the processing of fish. The temporary regulations also clarify that the maximum amount of income that an individual may elect to average is the total of the individual's farm and fishing income and gains, reduced by any farm and fishing deductions or losses allowed as a deduction in computing taxable income. Therefore, a taxpayer engaged in both a farming business and a fishing business must combine income, gains, deductions, and losses from both the farming business and the fishing business to determine the maximum amount of income that is eligible for averaging.

  A landlord is engaged in a farming business if this arrangement is established in a written agreement before the tenant begins significant activities on the land. Similarly a lessor of a vessel is engaged in a fishing business within the meaning of Code Sec. 1301(b)(4) if the payment due to the lessor under the lease is based on a share of the lessee's catch or a share of the proceeds from the sale of the catch, and the lease is a written agreement entered into before the lessee begins significant fishing activities resulting in the shared catch. A fixed lease payment is not eligible for income averaging.

  The regulations also provide that crew members on vessels engaged in fishing are engaged in a fishing business, whether or not they are treated as employees for employment tax purposes. Moreover, for purposes of income averaging computations, certain deposits into a Merchant Marine Capital Construction Fund also reduce taxable income.

  The temporary regulations generally apply to tax years beginning after July 22, 2008. Taxpayers may, however, apply the temporary regulations in taxable years beginning after December 31, 2003, but before July 23, 2008, if all provisions are consistently applied in each tax year.

  The text of the temporary regulations also serves as the text of proposed regulations.

T.D. 9417, 2008FED ¶47,052

Proposed Regulations, NPRM REG-161695-04, 2008FED ¶49,822

Other References:

 
Code Sec. 1301

  CCH Reference - 2008FED ¶31,789

  CCH Reference - 2008FED ¶31,789AE

  Tax Research Consultant

  CCH Reference - TRC FARM: 3,302

  CCH Reference - TRC FARM: 3,302.05