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Senior Advisor

Constructive receiipt

Sometimes it is handy deliver grain in December and take the money in January, moving it to the next tax year.  Is there any danger that this is constructive receipt?

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6 Replies
Honored Advisor

Re: Constructive receiipt

It would seem to me that it depends upon who has custody and control over the crop once delivered. It the elevator can ship it, sell it, etc., without asking you for permission, then that would be a sale to me, and delaying the payment into the next year might not be kosher. If it is still your crop, but stored there, maybe a horse of another color.
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Advisor

Re: Constructive receiipt

If it's not legal...then I better tell ConAgra..LOL. I've been delivering popcorn in Oct. through Dec. for over 10 years...and have never chosen to receive my check until after the 1st of the year. It's part of their contract...where they ask you when you want your money. With all the legal advice and documentation that ConAgra receives and asks for...I'd be surprised if doing it that way is not legal. We also have a local Co-Op..that will accept your corn or soybeans and ask if you want your money before or after the first of the year...and I believe they pay a little interest on your money if you deliver in Oct..and don't take your money until Jan. I believe it's because of the delayed pricing laws...which allows them to move your grain in any way they wish once you deliver...so technically, they're the owner of record at that time...you've just set the price you will accept for payment.

 

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Advisor

Re: Constructive receiipt

  My tax man says it is legal since farmers, at least me, operate on a cash basis.  I even defer payment on contracted grain if I end up with too much income and too few expenses.  My co op doesn't pay interest.

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Highlighted
Frequent Contributor

Re: Constructive receipt

If you deliver grain for a fall delivery contract and tell the elevator to not send you a check till January, it is considered to be constructive receipt since you have access to the money.  Therefore, it is taxable.

 

However, with the same scenario.   If you sign a deferred payment contract with the elevator that takes away the right to receive the money until a later date.  Then it becomes taxable when the date the contract states the money is available .  There are several requirements this contract must address to make it work with the IRS.  Most of our local elevators have that contract available if the farmer asks for it.

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Senior Advisor

Re: Constructive receipt

Here is an extract from a FARMDOC paper on the topic.

 

"Constructive Receipt

You may be planning on receiving payment for your 2011 crop in 2012 and have already contracted for the sale. However, the IRS can require you to report the income in 2011 if you have violated any provision in the contract. If the date on the contract is after you first delivered grain to the elevator, the IRS can rule you had constructive receipt of the grain proceeds. This is because there was nothing that prevented you from receiving payment for that delivery.

If you have the grain contracted and decide you need some of the proceeds before the end of the year and the elevator then issues you a check, the IRS can rule you did not have a valid contract as you were able to violate one of the provisions in the contract. The same is true if there is no date on the contract showing when you will receive payment."

 

http://www.farmdoc.illinois.edu/announcements/agrinews/July_2011/agrinews_July_2011.html 

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Advisor

Re: Constructive receipt

   The contracts state I will deliver X number of bushels at X per bushel by a certain date.  Time of payment to me is not specified.

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