TaxNewsFlash-Cooperatives

July 21, 2008
No. 2008-16

Regulations on Averaging of Farm and Fishing Income for Computing Income Tax Liability

The Treasury Department and IRS today released for publication in the Federal Register final and temporary regulations (T.D. 9417) and, by cross-reference, proposed regulations (REG-161695-04) concerning the averaging of farm and fishing income in computing income tax liability. The regulations provide guidance to individuals engaged in farming or fishing business who elect to reduce their tax 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.

For electronic versions of these regulations: T.D. 9417 and REG-161695-04

Background

Provisions under the American Jobs Creation Act of 2004 allow farmers and commercial fishermen to use income averaging to compute their current-year tax liability. The 2004 Act also provided that, in computing alternative minimum tax (AMT), a taxpayer’s regular tax liability is determined without regard to income averaging. Thus, a farmer or fisherman receives the full benefit of income averaging because averaging reduces the regular tax while the AMT (if any) remains unchanged.

Comments and requests for a public hearing with respect to the proposed regulations must be received by 90 days after the regulations’ publication in the Federal Register which is scheduled for tomorrow, July 22, 2008.

For more information, contact KPMG’s National Director of Cooperative Tax Services:

Teree Castanias, in Sacramento, (916) 554-1146, tcastanias@kpmg.com

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