Who qualified as a farmer for Louisiana individual estimated-tax purposes, and did farming income from pass-through entities count?

Plain-English summary

An individual was a farmer for Louisiana estimated-tax purposes when estimated farming gross income was at least two-thirds of total estimated gross income for the tax year.

The farming-income numerator included the individual's share of farming gross income passed through from S corporations, partnerships, and limited liability companies.

Why pass-through income counted

The ruling looked to federal partnership and S-corporation conduit principles. A partner included a distributive share of partnership farming gross income in the federal farmer calculation, and S-corporation shareholder gross-income determinations paralleled partnership rules.

Because Louisiana intended its farmer definition to work like the federal estimated-tax rule, the Department applied the same pass-through approach.

Common questions

Q: What was the Louisiana threshold?

A: At least two-thirds of total estimated gross income had to come from farming.

Q: Did S-corporation farming income count?

A: Yes, the shareholder's pro rata share counted.

Q: Did partnership and LLC farming income count?

A: Yes, the individual's share from those pass-through entities counted.

Q: Was the test based on net profit?

A: No. The ruling framed the test in terms of gross income.

Citations and references

• La. R.S. 47:117(B) — Louisiana estimated payments by farmers
• IRC §§ 6073 and 6654 — federal farmer estimated-tax rules discussed in the ruling
• IRC § 702(b), (c) and Treas. Reg. § 1.702-1(c)(1)(iv) — pass-through character and gross income
• IRS Revenue Ruling 87-121 — S-corporation farming income analysis
• LAC 61:III.101.C — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 06-006

Original ruling text

Revenue Ruling No. 06-006
May 10, 2006
Individual Income Tax
Definition of Farmer for Purposes of Estimated Payments
Purpose
The purpose of this Revenue Ruling is to provide guidance to Revenue employees and taxpayers
in determining who qualifies as a farmer for the purposes of estimated payments under R.S.
47:117(B).
Background
Revised Statutes 47:117, enacted in 1960, provides for the declaration of estimated payments by
individuals. Subsection B specifically addresses the declaration of estimated payments by
farmers, who are defined as individuals whose estimated gross income from farming for the
taxable year is at least two-thirds of their total estimated gross income from all sources.
In 1960, the Louisiana Legislature, in enacting R.S. 47:117, had the same intent as Congress had
when enacting Internal Revenue Code Sections 6073 and 6654, which provide special rules for
declarations of estimated payments by farmers. At the time, the term "farmer" was defined in
several Internal Revenue Code (IRC) sections including the now repealed IRC § 6073 and
current IRC § 6654 as either an individual whose estimated gross income from farming or
fishing is at least two-thirds of the total estimated gross income from all sources for the taxable
year or an individual whose gross income from farming or fishing shown on the return of the
individual for the preceding taxable year is at least two-thirds of the total gross income from all
sources shown on the return. IRS Publication 225 discusses what constitutes farm income for
purposes of IRC § 6654.
In further explanation of the term farmer, the IRS issued Revenue Ruling 87-121 to discuss
whether or not the income of flow thru entities, such as an S corporation, which participate in
farming activities would qualify their shareholders as farmers if the two-thirds test is met. Rev.
Rul. 87-121 analyzed the legislative history of the Subchapter S Revision Act of 1982. The
legislative history stated that the conduit rule for determining the character of items realized by
the corporation and included in the shareholder’s pro rata share will be the same as the
partnership rule under § 702(b) of the IRC and that gross income determinations by a
shareholder will parallel the partnership rules under § 702(c). Treasury Regulation 1.7021(c)(1)(iv) states that a partner is required to include his distributive share of partnership gross
income in determining the partner’s gross income from farming for purposes of the estimated tax
provisions. Because the gross income determinations made by a shareholder of an S corporation
parallel the gross income determinations made by a partner in a partnership, an individual
shareholder must also include the shareholder's pro rata share of the S corporation’s gross
income from farming for purposes of determining the shareholder’s individual gross income
from farming for estimated tax purposes. The Louisiana Legislature had the same intent and
purpose as Congress when defining farmer for estimated tax purposes; therefore, Louisiana’s
definition of farmer requires a similar analysis to the one above.
Ruling
A farmer for Louisiana estimated tax purposes is an individual whose estimated gross income
from farming for a taxable year is at least two-thirds of his or her total estimated gross income

Revenue Ruling 06-006
Page 2
May 10, 2006
from all sources for the taxable year. The individual’s gross income from farming will include
the individual’s pro rata share of farming income from any pass-thru entities such as S
corporations, partnerships and limited liability companies. If the individual’s gross income from
farming, including income from pass-thru entities, is at least two-thirds of his or her total
estimated gross income, the individual will be considered a farmer for purposes of R.S.
47:117(B).

A Revenue Ruling is issued under the authority of LAC 61III.101.C. A Revenue Ruling is written to provide guidance
to the public and to Department of Revenue employees. It is a written statement issued to apply principles of law to a
specific set of facts. A Revenue Ruling does not have the force and effect of law and is not binding on the public. It is
a statement of the department's position and is binding on the department until superseded or modified by a
subsequent change in statute, regulation, declaratory ruling, or court decision.