Section — Internal Revenue Bulletin 2005-28

26 CFR 20.2032A–4: Method of valuing farm real property.

Special use value; farms; interest rates. The 2005 interest rates to be used in computing the special use value of farm real property for which an election is made under section 2032A of the Code are listed for estates of decedents.

Rev. Rul. 2005–41

This revenue ruling contains a list of the average annual effective interest rates on new loans under the Farm Credit System. This revenue ruling also contains a list of the states within each Farm Credit System Bank Chartered Territory.

Under § 2032A(e)(7)(A)(ii) of the Internal Revenue Code, rates on new Farm Credit System Bank loans are used in computing the special use value of real property used as a farm for which an election is made under § 2032A. The rates in this

Therefore, the environmental remediation costs are allocable to the stoves produced by N during 2005, using an allocation method permitted under § 1.263A–1(f).

In Situation 4, N has permanently ceased its manufacturing activities at Site X . Nevertheless, the costs N incurs in 2005 to clean up Site X are incurred by reason of N ’s production activities, within the meaning of § 1.263A–1(e)(3)(i). See § 1.263A–2(a)(3)(i). Because the environmental remediation costs to clean up Site X are incurred in 2005, they are properly allocable to the inventory produced by N in 2005, in accordance with §§ 1.263A–1(c)(1) and 1.263A–1(c)(2). Therefore, the environmental remediation costs are allocable to the stoves produced by N during 2005, using an allocation method permitted under § 1.263A–1(f).

In Situation 5, N has permanently ceased burying waste from its manufacturing activities on Site Y . Nevertheless, the costs N incurs in 2005 to clean up Site Y are incurred by reason of N ’s production activities, within the meaning of § 1.263A–1(e)(3)(i). See § 1.263A–2(a)(3)(i). Because the environmental remediation costs to clean up Site Y are incurred in 2005, they are properly allocable to the inventory produced by N in 2005, in accordance with §§ 1.263A–1(c)(1) and 1.263A–1(c)(2). Therefore, the environmental remediation costs are allocable to the stoves produced by N during 2005, using an allocation method permitted under § 1.263A–1(f).

HOLDING

Environmental remediation costs that are incurred to clean up land that a taxpayer contaminated with hazardous waste by the operation of the taxpayer’s manufacturing activities are incurred by reason of the taxpayer’s production activities and are properly allocable under § 263A to the inventory produced during the taxable year the costs are incurred.

CHANGE IN METHOD OF ACCOUNTING

A taxpayer using a method of accounting that does not comply with this revenue ruling is using an impermissible method of accounting. Any change in a taxpayer’s treatment of environmental remediation costs to conform with this revenue ruling

is a change in method of accounting to which the provisions of §§ 446 and 481 and the regulations thereunder apply.

A taxpayer changing its method of accounting to comply with this revenue ruling must file a Form 3115 in accordance with the automatic change in method of accounting provisions of Rev. Proc. 2002–9, 2002–1 C.B. 327, as modified and clarified by Announcement 2002–17, 2002–1 C.B. 561, modified and amplified by Rev. Proc. 2002–19, 2002–1 C.B. 696, and amplified, clarified, and modified by Rev. Proc. 2002- 54, 2002–2 C.B. 432, except that the scope limitations in section 4.02 of Rev. Proc. 2002–9 do not apply to a taxpayer that makes the change for its first or second taxable year ending after February 6, 2004. A taxpayer that files Form 3115 to comply with Rev. Rul. 2004–18 and this revenue ruling for its first taxable year ending after February 6, 2004, may effect the change using either a § 481(a) adjustment as provided in sections 5.03 and 5.04 of Rev. Proc. 2002–9 or a cut-off method. See Rev. Rul. 2004–18. Additionally, a taxpayer that (1) files a Form 3115 on or before July 20, 2005, to comply with Rev. Rul. 2004–18 for its first taxable year ending after February 6, 2004, or was not required to change its method of accounting to comply with Rev. Rul. 2004–18, and (2) files Form 3115 to comply with this revenue ruling for its first taxable year ending after June 20, 2005, may effect the change using either a § 481(a) adjustment or a cut-off method.

For purposes of Line 1a of Form 3115 (revised December 2003), the designated number for the automatic accounting method change authorized by this revenue ruling is “92.” A taxpayer making the automatic change in method of accounting authorized by this revenue ruling and another automatic change in method of accounting under § 263A for the same taxable year may file one Form 3115 to make both changes, but must comply with the ordering rules of § 1.263A–7(b)(2) and must enter the automatic accounting method change numbers for both changes on Line 1a of Form 3115 (revised December 2003).

EFFECT ON OTHER DOCUMENTS

Rev. Proc. 2002–9 is modified and amplified to include in the APPENDIX the

2005–28 I.R.B. 69 July 11, 2005

C.B. 969, and other revenue rulings that are referenced therein.

DRAFTING INFORMATION

The principal author of this revenue ruling is Lane Damazo of the Office of the Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling, contact Lane Damazo at (202) 622–3090 (not a toll-free call).

revenue ruling may be used by estates that value farmland under § 2032A as of a date in 2005.

Average annual effective interest rates, calculated in accordance with § 2032A(e)(7)(A) and § 20.2032A–4(e) of the Estate Tax Regulations, to be used under § 2032A(e)(7)(A)(ii), are set forth in the accompanying Table of Interest Rates (Table 1). The states within each Farm Credit System Bank Chartered Territory

are set forth in the accompanying Table of Farm Credit System Bank Chartered Territories (Table 2).

Rev. Rul. 81–170, 1981–1 C.B. 454, contains an illustrative computation of an average annual effective interest rate. The rates applicable for valuation in 2004 are in Rev. Rul. 2004–63, 2004–27 I.R.B. 6. For rate information for years prior to 2004, see Rev. Rul. 2003–53, 2003–1

REV. RUL. 2005–41 TABLE 1

TABLE OF INTEREST RATES

(Year of Valuation 2005)

Farm Credit System Bank Servicing State in Which Property is Located Rate

AgFirst, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.68

AgriBank, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.44

CoBank, ACB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.91

Texas, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11

U.S. AgBank, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.25

REV. RUL. 2004–41 TABLE 2

TABLE OF FARM CREDIT SYSTEM BANK CHARTERED TERRITORIES

Farm Credit System Bank Location of Property

AgFirst, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, Pennsylvania, South Carolina, Virginia, West Virginia.

AgriBank, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Arkansas, Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee, Wisconsin, Wyoming.

CoBank, ACB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alaska, Connecticut, Idaho, Maine, Massachusetts, Montana, New Hampshire, New Jersey, New York, Oregon, Rhode Island, Vermont, Washington.

Texas, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alabama, Louisiana, Mississippi, Texas.

U.S. Agbank, FCB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Arizona, California, Colorado, Hawaii, Kansas, New Mexico, Nevada, Oklahoma, Utah