Constructive Receipt
December 06, 2002

Under the Farm Security and Rural Investment Act of 2002 (the 2002 Farm Bill), producers may elect to receive up to 50% of their direct payments in advance of the normal payment date of October 1 for each crop year through 2007. While the producer can elect in which month to receive the funds, the earliest the payments may be made is December of the year before the crop is harvested.

Under a doctrine known as "constructive receipt" the IRS make payments taxable in the earliest year in which those payments can be received, regardless of when those payments are actually received. Under this policy, a producer who elects to take the advance pay for the 2003 crop year any time from December 1, 2002 through September 30, 2003 would have a tax liability for that payment in 2002.

Congress had exempted payments made under the 1996 Farm Bill from the constructive receipt policy, however some felt the Congress had failed to renew that exemption in the 2002 Farm Bill.

Under questioning from Senator Max Baucus, however, USDA Secretary Ann Veneman has confirmed that indeed this exemption has been carried forward in the 2002 Farm Bill and no further legislative action will be necessary.