As many will recall, for taxable years beginning after 1986, taxpayers were required to capitalize the direct costs of production and the “proper share” of the indirect costs (including taxes) which were assignable to the production of property.1 That enactment generated stiff resistance from the agricultural sector, particularly among livestock producers, with the result that legislation enacted in 19882 made the provisions inapplicable to “animals” produced by the taxpayer in a farming business for costs incurred after December 31, 1988.3 For animals not “produced by the taxpayer in a farming business,” the preproductive rules continued to apply.4 Thus non-material participation landlords with little or no involvement in management could be subject to the preproductive period capitalization rules.5 However, the rules were not eased for producers of plants. Effective August 21, 2000, final regulations governing the application of preproductive rules to plants (and to animals still subject to the rules) were issued.6



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