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Oyster "Farming"

Technical topics regarding tax preparation.
#1
AnitaL  
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Wilmington, NC
HI, All!
I have a new client who has oyster leases, that is the state has permitted him to grow oysters in the waterways.
Should that activity be on a schedule C or a schedule F?
He buys seed oysters, they grow in these oyster bags, when they are of the correct size, he harvests them.
He's a single member LLC.
Thanks for any insight.
 

#2
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Earth
Schedule F based on the fact pattern. If he was harvesting wild oysters that he did not raise, Schedule C.
 

#3
Nilodop  
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Here are just some of the surprising number of authorities on oyster farms. Accounting method is discussed, not just whether it's Sch F or Sch C.

Rev. Rul. 55-611

An association which purchases supplies and equipment for its members who are fishermen is not a farmers' purchasing association within the meaning of section 521(b)(1) of the Internal Revenue Code of 1954 and, therefore, is not exempt from Federal income tax under such section.


Rev. Rul. 64-246

An association organized and operated on a cooperative basis for the purpose of marketing "farm-raised fish" is considered an organization composed of producers of farm products. Accordingly, the organization is held to be entitled to exemption from Federal income tax as a farmers', fruit growers', or like association within the meaning of section 521 of the Internal Revenue Code of 1954.

Revenue Ruling 55-611, C.B. 1955-2, 270, distinguished.


Rev. Rul. 76-241

The Internal Revenue Service has been asked to reconsider its position set forth in I.T. 2704, XII-2 C.B. 169 (1933).

I.T. 2704 provides as follows:

In view of General Counsel's Memoran­dum 12004 (page 168, this Bulletin), Office Decision 684 (C.B. 3, 80) is amended to read as follows:

The net income of a person engaged in the business of propagation and culture of oysters cannot be properly computed upon the basis of inventories. The net income of such a taxpayer is the amount of the gross sales of oysters plus all other items of gross income less allowable deductions, to be re­ported on the cash receipts and disburse­ments basis or the accrual basis in accord­ance with the method of accounting used by the taxpayer in keeping its books and in filing its returns.

Prior to the publication of I.T. 2704, the Service's position with re­spect to the income of oyster growers was published in O.D. 684, 3 C.B. 80 (1920), which held that the net income of persons engaged in the business of propagation and culture of oysters cannot be properly com­puted on the basis of inventories. The net income is the gross receipts for the year less the necessary business ex­penses and other allowable deductions.
. ***
Although the Service stated in I.T. 2704 that persons engaged in the cul­tivation of oysters cannot inventory oysters for purposes of computing in­come for Federal income tax purposes, it has been determined by the Service that growing oysters are capable of being inventoried.

Accordingly, the taxpayers in Ex­ample 1, Example 2, and Example 3, must inventory oysters and seed oysters unless the crop method is used. The inventory may be determined under the farm-price method as provided for by section 1.471-6(c) of the regula­tions. Adequate accounting records must be maintained to permit proper determination and verification of such inventories.


RR 80-366
Section 1.6073-1(b) of the Income Tax Regulations provides that esti­mated gross income from farming is the estimated income from oyster farming, the cultivation of the soil, the raising or harvesting of any agricul­tural or horticultural commodities and the raising of livestock, bees, or poul­try. The regulation also provides that the requisite gross income from farm­ing must be derived from the opera­tions of a stock, dairy, poultry, fruit, or truck farm, or plantation, ranch, nur­sery, range, orchard, or oyster bed. If an individual receives for the use of the land income in the form of a share of the crops produced thereon, such income is from farming.
 

#4
AnitaL  
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Wilmington, NC
Thanks for your help... I can't see why it would make much of a difference if it was reported on a schedule C vs a schedule F in this case. But, maybe I'm missing something.
 

#5
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WA State
AnitaL wrote:Thanks for your help... I can't see why it would make much of a difference if it was reported on a schedule C vs a schedule F in this case. But, maybe I'm missing something.


The availability of income averaging might be one reason.
~Captcook
 

#6
AnitaL  
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Wilmington, NC
Thank you!
 

#7
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CaptCook wrote:
AnitaL wrote:Thanks for your help... I can't see why it would make much of a difference if it was reported on a schedule C vs a schedule F in this case. But, maybe I'm missing something.


The availability of income averaging might be one reason.


Also no estimated tax penalties if filed and paid by March 1.
 


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