Value growing crops

[taxonomy]

I'm looking for reference as to how IRS wants growing crops valued for 706. - the cost of production incurred to DOD, value of later sale sale less all costs, or other. Thanks.

[Corduroy Frog]

Futures?

I hope others will post, as I have encountered only the fringe of this subject matter.

I believe you are attempting to approach this using production cost rather than FMV. I would use regulated futures for the particular crop, less normal tiers of commissions the farmer/estate can be expected to encounter. From this value should be subtracted all production costs and harvesting costs incurred AFTER DOD. The resulting basis is the original DOD valuation. These production costs can be added back to create an adjusted basis for cost of sales if the ultimate sale is made while the crop is still in the estate.

Alternate valuation which can result with the sale should be negligible. If this happens, it is usually because of some event - drought, sudden demand, etc. I believe this alternate valuation is optional anyway, and I'm not sure how to allow for it.

[taxonomy]

value growing crops

Thank you. Do you have a reference as to using futures? Since the ultimate sales price is known of the crop (9 months later) I would lean to using that, less costs.

Regarding alternative valuation, it is not elected on this return, and remember can only be used if it reduces estate tax.

Thanks again and I welcome other thoughts on what is IRS preference for arriving at FMV of growing crops at DOD.

[Corduroy Frog]

Try Sea-Tax

Toxicology, I wish I could help more.

A number of members of this message board deal in securities, one of them who posts quite often is Sea-Tax. He might be able to shed light on agriculture futures.

For example, I have no idea how to quantify "discounts" because future prices are time-valued estimated prices upon sale to the ultimate buyer. Part of the attraction to the investor is that his investment is highly levered, otherwise the price doesn't wobble around enough for the investor to make or lose a lot of money.

Discounts might depend upon the crop, for example, tobacco farmers sell their tobacco directly to cigarette makers. Livestock is sold by farmers to feedlot buyers, who in turn sell to ultimate meat packers. The "discounts" I refer to are essentially horizontal transaction levels in the distribution system.

Sea-Tax, are you out there?

[taxonomy]

706 value

Thank you Corduroy Toad for your input.