A winery that produces and sells wine would not be a farm. Other rural operations producing products which can be defined as agricultural or horticultural, for example, a rural business producing goat’s milk will be defined for income tax purposes as a farm. Grapes are the product of the vineyard and an agricultural commodity therefore, the vineyard is a farm. Yet, operators of a grape vineyard will fall under the definition of farm when using the inclusive wording “agricultural and horticultural commodities”. In the definition above the word orchard is included, however, vineyard or grove is not. The list above is not all inclusive, taxpayers and tax preparers can find many other references that define farm for tax purposes. TR Section 48.6420-4(c) (meaning of terms excise tax on gasoline).

IRC Section 6420(c)(2) (excise tax on gasoline).

TR Section 1.175-3 (soil and water conservation expenses).

TR Section 1.61-4(d) (gross income of farmers).

One such definition is found in IRC Section 2032A(e)(4) relative to estate tax valuation it reads as follows: The term “farm” includes stock, dairy, poultry, fruit, furbearing animal, and truck farms, plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards and woodlands.Įxamples of other locations in the Internal Revenue Code (IRC) and Treasury Regulations (TR) where this language with minor variation is used to define farm are: Defining “Farm”įarm is commonly defined in the tax code in numerous places with nearly the same words. The following discussion looks at the definition of a farmer from an income tax perspective, including the definitions of farm, farming and farmers as found in the Internal Revenue Code (IRC) and Treasury Regulations. These are farming activities and hence would all qualify as farm income. They have not further processed or modified the product. These examples show a producer raising or growing a product and selling that product.

Louisa operates a cattle ranch she sells weaned calves to a feedlot investor.

Ricardo raises lettuce and cabbage which he sells to a salad processing company.

Amal grows cut flowers which she sells weekly at the local farmer’s market.Rosa has a flock of milking goats and sells the milk to a local organic foods co-op.Bob raises wheat and sells his wheat to the local elevator.Also, someone who is not classified as a farmer may still be engaging in farming activities and have farm income. In some instances, an individual can be classified as a farmer for one income tax purpose but not for another.

For income tax purposes, however, taxpayers and their advisers need to be certain of the facts and circumstances in the context of the tax issue at hand. Used in the colloquial context most people will understand what being a farmer means as a description of the noble rural occupation. Operators of farming businesses may associate the term farmer as an adjective when describing themselves. For example, one of the benefits of being classified as a farmer is the exclusion of certain receipts from income as in the case of conservation payments as allowed under IRC Section 175. Meeting the qualifications of farming and being a farmer under the Internal Revenue Code (IRC) allows for special benefits however, not all agricultural producers meet these qualifications even if they are producing agricultural products, which is why it is vitally important for operators of farms and their tax professionals to understand the IRS tax definitions of farm, farming, and farmer. Guido van der Hoeven, Emeritus Extension Specialist/Senior Lecturer Department of Agricultural and Resource Economics, NC State University Introduction Farm, Farming and Who’s a Farmer for Tax Purposes

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