Rev. Rul. 75-36

Advice has been requested whether section 451(d) of the Internal Revenue Code of 1954 applies to crop disaster payments received under the circumstances described below.

The taxpayer, a farmer, files his returns on the basis of a calendar year and reports his income on the cash receipts and disbursements method of accounting. In 1974, the taxpayer suffered crop damage from natural disasters. On November 11, 1974, he received a check in the amount of 20x dollars as a reimbursement for such disaster from the Department of Agriculture pursuant to the Agricultural Act of 1949, as amended by the Agriculture and Consumer Protection Act of 1973, 7 U.S.C. section 1445a (Supp. III, 1973).

The Act provides a program of farm income guarantees through authorized loans and payments. In addition, farmers participating in the program are eligible for "disaster payments" whenever, because of natural disaster conditions, they are prevented from planting certain crops or the yield on such crops is determined to be abnormally low. Premium payments are not a requirement for eligibility for such "disaster payments" under the Act.

Section 451(d) of the Code provides that in the case of insurance proceeds received as a result of destruction or damage to crops, a taxpayer reporting on the cash receipts and disbursements method of accounting may elect to include such proceeds in income for the taxable year following the taxable year of destruction or damage, if he establishes that, under his practice, income from such crops would have been reported in a following taxable year.

The protection, in the instant case, is provided by and completely subsidized by the Government with no premium payments or other expense required for eligibility. The provision for "disaster payments" is simply another element of the farm income guarantee program established by the Act. Therefore, the "disaster payments" are not insurance proceeds, but rather are in the nature of guaranteed income.

Accordingly, it is held that the provisions of section 451(d) of the Code are not applicable to such "disaster payments." Thus, the amount of such payments is includible in the farmer's gross income for 1974.

¹ Also released as TIR-1338, dated January 14, 1975.