[Federal Register Volume 67, Number 23 (Monday, February 4, 2002)]
[Proposed Rules]
[Pages 5074-5075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-2625]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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  Federal Register / Vol. 67, No. 23 / Monday, February 4, 2002 / 
Proposed Rules  

[[Page 5074]]



DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-125626-01]
RIN 1545-BA25


Unit Livestock Price Method

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations relating to the 
use of the unit-livestock-price method of accounting. The proposed 
regulations affect livestock raisers and other farmers that elect to 
use the unit-livestock-price method. These proposed regulations provide 
rules relating to the annual reevaluation of unit prices and the 
depreciation of livestock raised for draft, breeding, or dairy 
purposes. This document also provides notice of a public hearing on 
these proposed regulations.

DATES: Written or electronic comments must be received by May 6, 2002. 
Requests to speak and outlines of topics to be discussed at the public 
hearing scheduled for June 12, 2002, at 10 a.m. must be received by May 
22, 2002.

ADDRESSES: Send submissions to: CC:IT&A:RU (REG-125626-01), room 5226, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may be hand delivered between the hours of 8 a.m. 
and 5 p.m. to: CC:IT&A:RU (REG-125626-01), Courier's Desk, Internal 
Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. 
Alternatively, taxpayers may submit comments electronically via the 
Internet by selecting the ``Tax Regs'' option on the IRS Home Page, or 
by submitting comments directly to the IRS Internet site at http://www.irs.ustreas.gov/tax_regs/regslist.html. The public hearing will be 
held in room 4716, Internal Revenue Building, 1111 Constitution Avenue, 
NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, A. 
Katharine Jacob Kiss at (202) 622-4920; concerning submissions and the 
hearing, Sonya M. Cruse at (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) under section 471 of the Internal Revenue 
Code (Code). The unit-livestock-price method, contained in Sec. 1.471-
6, provides for the valuation of different classes of animals in 
inventory at a standard unit price for each animal within a class. A 
taxpayer that elects to use the unit-livestock-price method must apply 
it to all livestock raised, whether for sale or for draft, breeding, or 
dairy purposes. Once established, unit prices and classifications 
selected by the taxpayer must be consistently applied in all subsequent 
years. Prior to 1997, Sec. 1.471-6 did not allow a taxpayer to make any 
changes in the unit prices without first obtaining the consent of the 
Commissioner.
    Following the enactment of section 263A, the IRS and Treasury 
Department published Notice 88-24 (1988-1 C.B. 491), which provided 
guidance to taxpayers regarding the application of the uniform 
capitalization rules to property produced in the trade or business of 
farming. Notice 88-24 indicated that forthcoming regulations would 
modify the rule contained in Sec. 1.471-6 and require that taxpayers 
adjust their unit prices upward, from time to time as specified by 
those regulations, to reflect increases in costs taxpayers experience 
in raising livestock. Notice 88-24 also provided safe-harbor unit 
prices for the unit-livestock-price method with respect to female 
cattle raised or purchased by a taxpayer for purposes of breeding (beef 
cattle) or milk production (dairy cattle).
    Contemporaneous with the publication of the section 263A temporary 
and proposed regulations on August 22, 1997, (TD 8729, 1997-2 C.B. 35), 
the IRS and Treasury Department modified the final regulations under 
Sec. 1.471-6 to provide, for taxable years beginning after August 22, 
1997, a taxpayer using the unit-livestock-price method must annually 
reevaluate its unit prices and must adjust the prices upward to reflect 
increases in the costs of raising livestock. The consent of the 
Commissioner is not required to make such upward adjustments, but no 
other changes in the classification of animals or unit prices may be 
made without the consent of the Commissioner.
    On September 5, 2000, the IRS and Treasury Department published 
final regulations under section 263A (TD 8897, 2000-36 I.R.B. 234) in 
the Federal Register (65 FR 50638), which obsoleted Notice 88-24, 
relating to rules for property produced in a farming business. The 
preamble to these final regulations discussed comments received 
regarding the modification made to the unit-livestock-price method and 
indicated the IRS and Treasury Department's intent to study this 
method. These proposed regulations are promulgated in response to those 
comments.

Explanation of Provisions

    Commentators expressed concern that if taxpayers are required to 
annually reevaluate their unit prices, they should be able to both 
increase and decrease the unit prices to reflect all changes in the 
costs of raising livestock. The IRS and Treasury Department agree that 
to the extent the unit-livestock-price method requires an annual 
reevaluation of the unit prices, a taxpayer should be able to increase 
and decrease its unit prices without securing the consent of the 
Commissioner. Such a change is not a change in method of accounting, 
but an application of the unit-livestock-price method, similar to the 
application of a standard cost method. Consequently, the proposed 
regulations allow a taxpayer to both increase and decrease its unit 
prices without obtaining the consent of the Commissioner.
    However, the IRS and Treasury Department also recognize a broader 
concern that the requirement to annually reevaluate unit prices may 
have eliminated much of the simplicity of the unit-livestock-price 
method. In this respect, the IRS and Treasury Department welcome 
comments on how the rules could be made simpler to apply. For example, 
the IRS and Treasury Department request comments on whether safe harbor 
unit prices

[[Page 5075]]

similar to those announced in Notice 88-24 should be made available 
again to taxpayers using the unit-livestock-price method. If so, 
comments specifically are requested as to an index or measure those 
safe harbor unit prices should be based on and how often those safe 
harbor unit prices should be adjusted.
    Commentators also suggested that the unit-livestock-price method 
should be clarified to allow a taxpayer to remove from inventory 
animals that have been raised for use in a taxpayer's trade or business 
(such as a breeding cow) and depreciate the cost of the animal based on 
its inventoriable cost. Under Sec. 1.471-6(g), a livestock raiser who 
uses the unit-livestock-price method is permitted to elect to include 
animals purchased for draft, breeding, or dairy purposes in inventory 
or to treat those animals as property used in a trade or business 
subject to depreciation after maturity. In contrast, Sec. 1.471-6(f) 
does not specifically permit a livestock raiser who uses the unit-
livestock-price method to elect to treat animals raised for draft, 
breeding, or dairy purposes as property used in a trade or business 
subject to depreciation after maturity. There does not appear to be a 
current rationale for distinguishing between animals raised versus 
animals purchased for draft, breeding, or dairy purposes. Accordingly, 
the proposed regulations clarify that a livestock raiser that uses the 
unit-livestock-price method may elect to remove from inventory after 
maturity an animal raised for draft, breeding, or dairy purposes and 
treat the inventoriable cost of such animal as an asset subject to 
depreciation.

Effective Date

    These regulations are applicable to taxable years ending after the 
date final regulations are published in the Federal Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It has also 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to these regulations and, because 
these regulations do not impose on small entities a collection of 
information requirement, the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis 
is not required. Pursuant to section 7805(f) of the Code, this notice 
of proposed rulemaking will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any electronic or written comments 
(preferably a signed original and eight (8) copies) that are submitted 
timely to the IRS. The IRS and Treasury Department specifically request 
comments on the clarity of the proposed rules and how they can be made 
easier to understand. All comments will be available for public 
inspection and copying.
    A public hearing has been scheduled for June 12, 2002, at 10 a.m. 
in room 4716, Internal Revenue Building, 1111 Constitution Avenue, NW., 
Washington, DC. All visitors must present photo identification to enter 
the building. Because of access restrictions, visitors will not be 
admitted beyond the immediate entrance area more than 15 minutes before 
the hearing starts. For information about having your name placed on 
the building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing.
    Persons who wish to present oral comments at the hearing must 
submit electronic or written comments and an outline of the topics to 
be discussed and the time to be devoted to each topic (signed original 
and 8 copies) by May 22, 2002. A period of 10 minutes will be allotted 
to each person for making comments. An agenda showing the scheduling of 
the speakers will be prepared after the deadline for receiving outlines 
has passed. Copies of the agenda will be available free of charge at 
the hearing.

Drafting Information

    The principal author of these proposed regulations is A. Katharine 
Jacob Kiss, Office of Associate Chief Counsel (Income Tax and 
Accounting). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    1. The authority citation for part 1 is amended by adding an entry 
in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.471-6 also issued under 26 U.S.C. 471. * * *
    2. Section 1.471-6 is amended as follows:
    1. In paragraph (c), the last sentence is removed.
    2. Paragraph (f) is revised.
    3. In paragraph (g), the first sentence is amended by removing the 
language ``capital assets'' and adding in its place ``property used in 
a trade or business.''
    The revisions read as follows:


Sec. 1.471-6  Inventories of livestock raisers and other farmers.

* * * * *
    (f) A taxpayer that elects to use the ``unit-livestock-price 
method'' must apply it to all livestock raised, whether for sale or for 
draft, breeding, or dairy purposes. The inventoriable costs of animals 
raised for draft, breeding, or dairy purposes can, at the election of 
the livestock raiser, be included in inventory or treated as property 
used in a trade or business subject to depreciation after maturity. See 
Sec. 1.263A-4 for rules regarding the computation of inventoriable 
costs for purposes of the unit-livestock-price method. Once 
established, the methods of accounting used by the taxpayer to 
determine unit prices and to classify animals must be consistently 
applied in all subsequent taxable years. A taxpayer that uses the unit-
livestock-price method must annually reevaluate its unit prices and 
adjust the prices either upward to reflect increases, or downward to 
reflect decreases, in the costs of raising livestock. The consent of 
the Commissioner is not required to make such upward or downward 
adjustments. No other changes in the classification of animals or unit 
prices may be made without the consent of the Commissioner. See 
Sec. 1.446-1(e) for procedures for obtaining the consent of the 
Commissioner. The provisions of this paragraph (f) apply to taxable 
years ending after the [date that final regulations are published in 
the Federal Register.]
* * * * *

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 02-2625 Filed 2-1-02; 8:45 am]
BILLING CODE 4830-01-P