Whenever a producer has a crop insurance claim, I am sure most tax advisors get asked about deferring the proceeds until the following year to avoid paying any taxes. However, depending upon the type of claim you have, you may not qualify to defer it at all.
I bring this up due to the popularity of other crop insurance products that producers have been utilizing, including Revenue Protection (RP), Yield Protection (YP), Revenue Protection with Harvest Price Exclusion (RPHPE), or Group Risk Protection (GRP) to name a few. These contracts have revenue based features that are directly tied to low yields and/or low prices instead of any actual crop loss (i.e. hail, fire, etc.)
The IRS has taken a position on these types of insurance products, and in order for a crop insurance payment to be deferrable, the payment must have been made as a result of (1) damage to crops, or (2) the inability to plant crops (i.e. prevent plant). Therefore, deferrable payments must be directly associated with the actual loss or destruction of a crop.
In general, this means that proceeds received from revenue based insurance products cannot be deferred and must be recognized in the year in which they are received. If a payment is made on a policy that has both a crop loss feature and a price/yield loss feature, the payment must be reviewed and only the portion from actual crop loss is deferrable.
