Rev. Rul. 65-98

Advice has been requested regarding when payments received by a taxpayer under the provisions of the United States Department of Agriculture `1963 Feed Grain Program,' are to be included in gross income for Federal income tax purposes.

The law governing the `1963 Feed Grain Program' provides for payments to producers who voluntarily divert acreage from the production of designated feed grains, i.e., corn, barley, and grain sorghums, and who devote such acreage to prescribed conservation uses for the entire calendar year. Feed grain producers usually make application for coverage under the feed grain program in February or March of each year. In order for a producer to be eligible to participate in the program for 1963, the farm operator must have completed and filed Form ASCS-477, Intention to Participate and Application for Payment, at the ASCS (Agricultural Stabilization and Conservation Service) county office, no later than March 22, 1963. The law permits and advance payment of up to 50 percent at the time the declaration of intention to participate in the program is filed.

Form ASCS-477 discloses the farm number, the name and address of the farm operator and the owner, total farm acreage, total cropacreage, the base acreage for each feed grain, the number of acres to be diverted, the diversion payment rate, price support payment data, the names of the producers, should there be more than one involved on a particular farm, and whether an advance payment is desired.

Coupled with the election, by the filing of Form ASCS-477, to participate in the Feed Grain Program is the responsibility for (1) diversion of acreage from feed grain production, (2) designation of the land to be diverted and dedication of the diverted acreage to approved conservation uses, (3) maintenance of the conservation base acreage on the farm, and (4) restriction of the feed grain acreage on each farm on which the producer shares in the production of feed grains.

Generally, final payments to producers under the Feed Grain Program are made after the farm operator signs Form ASCS-477 under Part V, certifying that there has been compliance with the 1963 Feed Grain Program Regulations.

ASCS county committees are responsible for determining eligibility of the producers for payment. Compliance checks are begun as soon as possible after crops have been planted since measurements must be completed on each individual farm before that farm is eligible for final payment. Final payment may be made if the following requirements are met. These are: (1) Funds must be available, (2) compliance checks must be substantially complete, and (3) the `disposition date' for the disposition of crops on excess acreage has passed. Compliance checks are substantially completed by September 1, 1963, and final payment, generally, mat be made after that date. However, payment may be made earlier if the above requirements are met before that date.

The `disposition date' is the date by which any feed grain crop growing on acreage planted in excess of that permitted to a participating farm must be disposed of or otherwise destroyed. No payment to the producer will be made under the program unless there has been a disposition of the crop on the farm's excess acreage, if any. This disposition date, which varies by states and localities, may be any date during the months of August and September, but seldom does it go beyond the end of October. The three requirements set out above are completed by the end of the calendar year.

Section 451(a) of the Internal Revenue Code of 1954 provides that any item of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under the method of accounting used in computing taxable income, such amount is to be properly accounted for as of a different time.

Section 1.451-2(a) of the Income Tax Regulations provides, in pertinent part, as follows:

Income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon, it during the taxable year if notice of intention to withdraw had been given.

The general rule under section 451 of the Code and the regulations issued thereunder is applicable with respect to payments received under the `1963 Feed Grain Program.'

Therefore, it is held that the advance and final diversion payments in the instant case are includible in the gross income of the producer when they are received by him, or when they are made available to him, whichever is earlier. In this case final payment is made available to the producer in the calendar year the farm is found to be in compliance with the requirements of the program. The fact that the farm operator does not sign Form ASCS-477 application for the final payment will not in itself serve to defer the reporting of the payments to a later year.