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Abstract

On September 25, 2006, the Internal Revenue Service published Rev. Rul. 2006-461 which states that – “. . . the Conservation Security Program is substantially similar to the type of program described in section 126(a)(1) through (8) of the Code within the meaning of section 126(a)(9). As a result, all or a portion of cost-share payments received under the CSP is eligible for exclusion from gross income to the extent permitted by section 126. The language of the ruling echoed the language appearing in the Federal Register2 in June of 2005 in which the Secretary of Agriculture stated that “this determination permits recipients to exclude from gross income, for Federal income tax purposes, all or part of the existing practice, new practice, and enhancement activity payments to the extent allowed by the Internal Revenue Service.”3 However, as pointed out in articles appearing in the Agricultural Law Digest on November 18, 20054 and December 16, 2006,5 the exclusion provision under I.R.C. § 126 is limited to “improvements.”6 The language in the latest ruling, as with the language in the Federal Register announcement7 may lead CSP participants to believe that more of the CSP cost-share payments are excludible than is justified under I.R.C. § 126.8

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