Qualifying as a "farmer" for estimate tax purposes.

• Author: Ellentuck, Albert B.

Facts: Jim and jean Moore have operated a farm in their spare time for several years; last year, for the first time, the farm made a profit. Jim has decided to retire from his job and devote more time to the farm. * The Moores' prior year return reflects the following information: wages (Jim and Jean), $80,000; farm gross receipts, $100,000; interest and dividends, $10,000. For the current year, they project their income and deductions to be: wages (Jean), $45,000; farm gross receipts, $150,000; farm expenses, $100,000; interest and dividends, $6,000; itemized deductions and exemptions, $66,100. In addition, they anticipate selling a portion of their farmland for a gain of $65,000. Issue: Can the Moores qualify as farmers for estimated tax purposes?

Analysis

Most taxpayers are required to make four equal installments of their estimated tax on April 15, June 15, September 15 and january 15. However, special rules apply for farmers and fishermen. Taxpayers who receive at least two-thirds of their gross income from farming or fishing do not have to make quarterly installments. Instead, they are required to make one installment by January 15 of the subsequent year. Additionally, the amount of the installment need only be 66 2/3%--instead of the 90% required of other taxpayers.

The general rule regarding the January 15 payment not being due if any taxpayer files his return and pays the tax by January 31 is also modified for farmers and fishermen. They can disregard the January 15 and January 31 dates if they file their return and pay the tax by March 1.

These special rules apply to taxpayers who receive two-thirds of their gross income from farming or fishing in either the current or prior year. Gross income from farming includes income from the active management or operation of a farm for profit, crops produced on the land or rents based on farm production.

Gross income from farming does not include wages received for farming another person's land or gain from the sale of farmland.

The Moores cannot qualify as farmers based on their prior year activity because gross income from farming ($100,000) was not at least two-thirds of total gross income ($190,000) for the prior year. Additionally, the gain from the sale of farmland during the current year will cause them to fail the two-thirds test because the gain is not considered income from farming. Thus, the Moores would have to make quarterly estimated tax payments under the general rule...