Understanding the Implications and Benefits of IRS Notice 2023-67 for Farmers Facing Drought Challenges

Farmers, have you been watching the sky, hoping for rain? Have you made the tough decision to sell livestock because the land can’t support them? You’re not alone. Droughts can make already challenging work even more grueling. To assist and provide relief to farmers and ranchers with the impacts of drought, the Internal Revenue Service (IRS) has issued Notice 2023-67. 


For a bit of perspective, the IRS typically grants relief for capital gains that eligible farmers and ranchers realize when they are compelled to sell livestock, specifically those held for draft, dairy or breeding purposes. Unfortunately, livestock raised for slaughter or sporting, and poultry don’t qualify for this relief. 

The root cause for such a sale must be drought, flooding or any other severe weather event, making the region eligible for federal assistance. Usually, under such conditions, the livestock that’s been sold has to be replaced within two years. However, in the case of drought or similar conditions, this replacement period can be extended to four years, providing some relief. Furthermore, the IRS holds the authority to extend this period even further in continuing such adverse conditions. The recent one-year extension means that affected farmers and ranchers now have until the end of the tax year after the first drought-free year to replace their sold livestock. 

The Importance of Notice 2023-67 

This new notice, released Sept. 27, 2023, provides a clearer picture of the regions hit hardest by drought over the past year. Almost every state, except Alaska, had at least one county suffering from drought conditions. Now, if your county was affected, or even if you’re located next to one that was, there’s good news in store. 

Even if your county faced just a week of these severe conditions, the IRS has green-lit an additional year for you to replace your livestock. This change gives you some much-needed breathing room. 

How Does This Benefit Farmers and Ranchers? 

If your farm falls within or adjacent to one of these listed counties, you’ve been granted an extra year to replace any livestock you had to sell because of the drought, under section 1033(e). For many of you eyeing the Dec. 31, 2023 deadline to restock, you now have until the end of your next tax year. This adjustment is particularly relevant if you had to make tough decisions back in 2019 due to drought conditions. And for those who took action even before 2019, you might still benefit from this because of previous extensions. 


While Notice 2023-67 won’t make the drought disappear, it’s the IRS’s way of saying they recognize your hardships and have agreed to provide additional relief from the pending taxation that many farmers were facing. As you continue to navigate these challenging times, know that there are provisions in place designed with your needs in mind. We will keep you informed of any continuing developments that might affect our clients, as they arise.  In the meantime, feel free to contact an Adams Brown advisor.