Revenue Ruling 2003-15, I.R.B. 2003-4, 303, January 24, 2003
Section 126: Cost-Sharing Payment - Exclusion from Income
Exclusions from income: Cost-sharing payments: Agricultural Management Assistance Program
The IRS has determined that all or a portion of cost-share payments received under the Agricultural Management Assistance (AMA) Program is eligible for exclusion from gross income to the extent permitted by Code Sec. 126. The AMA Program is substantially similar to the type of programs described in Code Sec. 126(a)(1) through (8); thus, it falls within the scope of Code Sec. 126(a)(9).
ISSUE
Is the Agricultural Management Assistance (AMA) program substantially similar to the type of programs described in § 126 (a)(1) through (8)of the Internal Revenue Code, so that the AMA program is within the scope of § 126(a)(9) and, thereby, cost-share payments received under the AMA program are eligible for exclusion from gross income to the extent permitted by § 126?
FACTS
The AMA program, authorized under the provisions of Title I of the Agricultural Risk Protection Act of 2000, Pub. L. No. 106-224, 114 Stat. 358, is a voluntary program that provides cost-share assistance to agricultural producers to address threats to soil, water, and related natural resources by incorporating certain conservation practices into their farming operations. An agricultural producer who participates in the AMA program enters into a 5 to 10 year cost-share agreement with the Department of Agriculture pursuant to which the agricultural producer agrees to implement eligible conservation practices in return for cost-share payments in the amount of 75 percent of the cost of the eligible practice, with a limit of $50,000 per person for any fiscal year. The total cost-share payments paid per person over the course of the contract cannot exceed $150,000.
The Secretary of Agriculture has determined that cost-share payments under the AMA program are primarily for the purpose of conservation.
LAW AND ANALYSIS
Under § 126(a), gross income does not include the excludable portion of payments received under certain conservation programs set forth in § 126(a)(1) through (8). Under § 126(a)(9), a program affecting "small watersheds" that is administered by the Secretary of Agriculture also is eligible for § 126 treatment if the Commissioner determines that the program is substantially similar to the type of programs described in §§ 126(a)(1) through (8). See § 16A.126-1(d)(3) of the temporary Income Tax Regulations for the definition of "small watershed."
Once the Commissioner has determined that a program is substantially similar to the types of programs described in Code Sec. § 126(a)(1) through (8), taxpayers receiving cost-share payments under that program must determine what portion of the cost-share payments is excludable from gross income under § 126. See § 126(b)(1), and § 16A.126-1 relating to the partial exclusion for certain cost-share payments to determine what portion of the cost-share payments is excludable from gross income under § 126.
HOLDING
The AMA program is substantially similar to the type of programs described in §§ 126(a)(1) through (8) within the meaning of § 126(a)(9). All or a portion of costshare payments received under the AMA program is eligible for exclusion from gross income to the extent permitted by § 126. See § 126(b)(1) and § 16A.126-1to determine what portion, if any, of the cost-share payments is excludable from gross income under § 126.
DRAFTING INFORMATION
The principal author of this revenue ruling is Nicole R. Cimino of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Ms. Cimino at (202) 622-3120 (not a toll-free call).