[Federal Register Volume 67, Number 208 (Monday, October 28, 2002)]
[Rules and Regulations]
[Pages 65697-65698]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27158]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9019]
RIN 1545-BA25


Unit Livestock Price Method

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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

EFFECTIVE DATE: These regulations are effective October 28, 2002.

FOR FURTHER INFORMATION CONTACT: A. Katharine Jacob Kiss at (202) 622-
4930 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) under section 471 of the Internal Revenue Code (Code). A 
notice of proposed rulemaking (REG-125626-01, 2002-9 IRB 604) was 
published in the Federal Register (67 FR 5074) on February 4, 2002. No 
public hearing was requested or held. One comment responding to the 
notice of proposed rulemaking was received. The proposed regulations 
are adopted by this Treasury decision.

Explanation of Provisions

    The unit-livestock-price method provides for the valuation of 
different classes of animals in inventory at a standard unit price for 
each animal within a class. 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 regulations allow taxpayers to both increase and decrease unit 
prices without obtaining the consent of the Commissioner. The 
regulations also 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

[[Page 65698]]

cost of such animal as an asset subject to depreciation.
    In the notice of proposed rulemaking, the IRS and Treasury 
Department requested comments on whether safe harbor unit prices should 
be made available to taxpayers using the unit-livestock-price method 
and, if so, what index should be used. The sole commentator requested 
that safe harbor unit prices should be made available, and suggested 
using the price index developed by a local state extension service for 
the safe harbor unit prices. Due to the lack of widespread interest in 
developing and using safe harbor unit prices, the final regulations do 
not adopt that suggestion.

Effective Date

    These regulations are applicable to taxable years ending after 
October 28, 2002.

Special Analyses

    It has been determined that this Treasury decision 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, the proposed 
regulations preceding these regulations were submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business.

Drafting Information

    The principal author of these 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.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

    Paragraph 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. * * *

    Par. 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 October 28, 2002.
* * * * *

    Approved: October 2, 2002.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 02-27158 Filed 10-25-02; 8:45 am]
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