In the Nelson v. Commr. case, which involved a crop loss, federal crop insurance proceeds relating to destroyed crops; partnerships regularly reported 65% of annual harvest income in the year of harvest and 35% in the following year and allocated income among petitioning partners according to the same formula generally recognized and accepted by the IRS. For 2001, the partnerships elected under Section 451(d) to defer reporting 100% of crop insurance proceeds until 2002, and the IRS treated 100% of proceeds as 2001 income and determined deficiencies and penalties against the partners. The Tax Court determined neither partnerships nor petitioners could defer reporting of proceeds as income to 2002 since, under Reg 1.451-6(a)(1), Section 451(d) deferral of crop insurance and crop proceeds was available only where a cash method taxpayer normally would have deferred the income from insured crops to the following year but the petitioners would have deferred only 35%; and in view of the difficult statutory interpretation the petitioners had acted reasonably and were not liable for penalties.
JON W. AND K
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