Farm experts?

[DixieEA]

Taxpayer is a cotton farmer. The price of cotton was cheap at harvest time and the cotton
gin arranged to market the cotton thru Cargill a cotton and grain merchant. Cargill required
the farmer to place the cotton under government loan and give up rights to the cotton by giving a POA to Cargill. At this point the farmer was paid $250,000 from Cargill agent which represented the loan value less the loan fees. In 2009 the farmer receives a 1099-G
from the CCC for the market gain of $55,000 for the 2008 tax yr. This amt was included
in the $250,000 loan(sale). I understand that i need to show the market gain on lin 6a and
deduct it out on line 6b of Sch F so it will not be taxed twice. My question is should the
$250,000 be included as crop proceeds line 4 or as loan proceeds on lin 7a of Sch F?
It seems to me if you have market gain it would have to be loan porceeds. Any thoughts
would be appreciated.

[thomtax]

DixieEA - Did you ever get anything on this?

[Nashville]

Loan Proceeds Optional

Dixie, hate that no one has answered this.

I am far from knowledgeable, but I do recall during one of our drought years, the nationwide "Farm" Seminar told us the taxpayer had the option of treating the loan as revenue in the year received, or strictly as a loan (no income). If you treated as a loan, then the full proceeds were revenue in the year of settlement. If you treated as revenue, then only the incremental difference was revenue.

Mathematically, it would be possible to have a loss if the loan as revenue created a basis greater than the ultimate proceeds. That would be mathematically, but in the real world, a lender cannot be found who would possibly loan more than the ultimate crop, even in a drought year.

Dixie, I believe the treatment was only for that drought year. However, there have been many years since then that droughts were much, much worse. For Tennessee, Georgia, and the Carolinas, such a treatment could have easily been made permanent.

Don't know whether this helps or not, but at least we've stirred the pot.

[DixieEA]

Thanks

Nashville, in my case the price of the cotton at ginnng time was .43/lb. The CCC loan value at that time was .52/lb. Thus, the farmer signs POA to agent Cargill who then
controls the marketing of the cotton and thus the paying back of the CCC loan.
At a later time, Cargill pays back the CCC loan when the loan amt is at a lower rate
than .52/lb. This creates "market gain". In 2007 the IRS changed the rules where market gain is shown as being received by the farmer by being reported on 1099-G. The farmer
only got .52/lb. The farmer wishes to include this amt in income. Do I include on line
4 Sch F as sale or as loan proceeds on line 7a SchF. I need to show the market gain
on line 6a and back out on line 6b so the farmer does not pay on it twice. I think I need
to show as loan proceeds instead of sale. What do you think?

[Snaggletooth]

Total is 52 cents

..not sure I totally follow what occurred Dixie. But I'm thinking the crux depends on how the loan proceeds were reported in 2007.

If he was loaned 43 cents/lb in 2007, he had the option of reporting that as income in 2007, or he may have chosen to report nothing because it was a loan.

If he received the contingent of 52 cents in 2008, he would report the whole thing, but would back out 43 cents if he had reported this amount as income in 2007. If he reported this as a loan, then the entire 52 cents is income.

I agree lines 6a and 6b should be used to report. I would make sure line 6a agreed with the 1099-G.