SECTION 3. EXTENSION OF

REPLACEMENT PERIOD FOR PERSISTENT DROUGHT

.01 In General . If a sale or exchange of livestock is treated as an involuntary conversion on account of drought and the taxpayer’s replacement period is determined under § 1033(e)(2)(A), the replacement period will be extended under § 1033(e)(2)(B) until the end of the taxpayer’s first taxable year ending after the first drought-free year for the applicable region. For this purpose, the first drought-free year for the applicable region is the first 12-month period that—

(1) Ends on August 31; (2) Ends in or after the last year of the taxpayer’s 4-year replacement period determined under § 1033(e)(2)(A); and

(3) Does not include any weekly period for which exceptional, extreme, or severe drought is reported for any location in the applicable region.

.02 Applicable Region . The applicable region with respect to a sale or exchange of livestock on account of drought conditions is the county that experienced the drought conditions on account of which the livestock was sold or exchanged and all counties that are contiguous to that county.

.03 Exceptional, Extreme, or Severe Drought . (1) U.S. Drought Monitor Maps . A taxpayer may determine whether exceptional, extreme, or severe drought is reported for any location in the applicable region by reference to U.S. Drought Monitor maps produced by the National Drought Mitigation Center. In determining whether a 12-month period ending on August 31 of a calendar year includes any period for which exceptional, extreme, or severe drought is reported, all maps with dates before September 8 of that year and after August 31 of the preceding calendar year are taken into account. U.S. Drought Monitor maps are archived at http://www.drought.unl.edu/dm/ archive.html .

(2) Publication of List of Drought Counties . Taxpayers can generally determine on the basis of a visual inspection of U.S. Drought Monitor maps whether exceptional, extreme, or severe drought is reported for all or part of a county. In some cases, however, on the borders of a drought zone, it may not be clear on the basis of a visual inspection whether a county is within or partly within the zone. Accordingly, the Internal Revenue Service, after consultation with the National Drought Mitigation Center, will publish in September of each year a list of counties for which exceptional, extreme, or severe drought was reported during the preceding 12 months. Taxpayers may use this list instead of U.S. Drought Monitor Maps to determine whether a 12-month period ending on August 31 of a calendar year includes any period for which exceptional, extreme, or severe drought is reported for a location in the applicable region.