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600 E. Boulevard Ave.
  Bismarck, ND 58505-0599
  701.328.7088 phone
  701.328.3700 fax
  877.328.7088 toll-free
FOR IMMEDIATE RELEASE Contact: Cory Fong, Tax Commissioner, 701-328-2770
Wednesday, July 19, 2006  


BISMARCK, N.D. – With the recent heat wave, limited rainfall, and triple-digit temperatures, many areas in North Dakota are facing a drought crisis. Tax Commissioner Cory Fong indicated that farmers and ranchers, who may be considering selling down herds or even selling their entire herds, may qualify for special federal income tax considerations.

“Income taxes are an area where farmers, ranchers, and ag-related businesses may have questions on how they should handle their situation during and after a drought,” said Fong.

According to Internal Revenue Service (IRS) guidelines, farmers and ranchers who are selling livestock or are considering selling because of drought or other weather-related conditions have two different options.

The first provision applies to all types of livestock and allows postponement for reporting income from forced sales for a year.

“Continued dry weather conditions in North Dakota have forced producers to liquidate their livestock,” said Fong. “Producers need to know that there may be some relief in the form of special consideration for federal income tax purposes.”

According to the IRS, if you sell more livestock than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to choose to postpone reporting the gain from selling the additional animals until the next year.

The drought must have caused an area to be designated as eligible for disaster assistance by the federal government. The livestock does not have to be raised or sold in that designated area, such as a particular county, but only nearby.

The other IRS provision applies to the forced sale of breeding and dairy animals. If these animals are sold due to a drought, the sale may be treated as an involuntary conversion. Only livestock sold in excess of the number typically sold under normal circumstances are considered involuntary conversions. For example, if you typically sell 25 dairy animals during the year but this year, due to the drought, you sell 40 dairy animals, the sales of the additional 15 animals are treated as involuntary conversions.

North Dakota income tax law recognizes the federal income tax relief provisions for forced sales and involuntary conversions. Because North Dakota uses federal taxable income as the starting point for determining state income tax liability, producers will automatically receive the benefit of the federal deferral provisions.

“Producers should check into information from the IRS,” said Fong referring to IRS Publication 225 - Farmer’s Tax Guide and IRS Publication 547 - Casualties, Disasters, and Thefts. “Or visit with a tax advisor to learn more about the provisions.” The IRS web site is www.irs.gov.

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