For tax professionals with clients in agriculture, managing the tax implications of weather-related events is a critical service. The Internal Revenue Service recently issued Notice 2025-52 on September 22, 2025, which provides an extension of the replacement period under Internal Revenue Code § 1033(e) for farmers and ranchers who were forced to sell livestock due to drought conditions. This notice works in conjunction with prior guidance established in Notice 2006-82 and offers crucial relief by allowing additional time to defer capital gains from these involuntary conversions.

Governing Law and Analysis

The foundation for this relief lies in IRC § 1033, which governs the tax treatment of involuntary conversions.

IRC § 1033(a): This section generally provides for the nonrecognition of gain when property is involuntarily converted and subsequently replaced with property that is "similar or related in service or use". Gain is recognized only to the extent that the amount realized from the conversion exceeds the cost of the replacement property.
IRC § 1033(e)(1): This provision specifically addresses livestock, treating certain sales as involuntary conversions. It applies to sales or exchanges of livestock (excluding poultry) held for draft, breeding, or dairy purposes that are in excess of the number a taxpayer would normally sell under their usual business practices. To qualify, the sale must be "solely on account of drought, flood, or other weather-related conditions". Sales of livestock raised for slaughter or held for sporting purposes are not eligible for this treatment.
IRC § 1033(e)(2): This subsection defines the replacement period for these weather-related livestock sales. Under § 1033(e)(2)(A), if the area has been designated as eligible for federal assistance due to the weather conditions, the replacement period is extended to four years after the close of the first tax year in which any part of the gain is realized. This is a significant extension from the usual two-year period.
IRC § 1033(e)(2)(B): Critically, this gives the Secretary of the Treasury the authority to further extend the four-year replacement period on a regional basis if the adverse weather conditions persist for more than three years.

Interaction of Notice 2006-82 and Notice 2025-52

Notice 2006-82 established the procedural framework for implementing the extension authority granted by § 1033(e)(2)(B) for persistent drought. It specifies that for an eligible taxpayer, the replacement period is extended until the end of the taxpayer’s first taxable year that concludes after the "first drought-free year" for the applicable region.

Notice 2006-82 defines the "first drought-free year" as the first 12-month period that meets all of the following criteria:

It ends on August 31.
It ends in or after the final year of the taxpayer's original four-year replacement period.
It does not include any week where "exceptional, extreme, or severe drought" is reported for any location within the applicable region.

The "applicable region" is defined as the county where the drought occurred that prompted the livestock sale, plus all contiguous counties. Taxpayers can determine drought severity by referencing the U.S. Drought Monitor maps produced by the National Drought Mitigation Center.

Recognizing that visual map inspection can be difficult, Notice 2006-82 also mandated that the IRS would publish a list each September of counties that experienced exceptional, extreme, or severe drought during the preceding 12-month period ending August 31.

IRS Conclusions in Notice 2025-52

Notice 2025-52 is the fulfillment of that annual requirement for the 12-month period ending August 31, 2025. The notice includes a comprehensive appendix listing all counties (and other jurisdictions like parishes or boroughs) across 49 states, the District of Columbia, and other regions that reported the qualifying levels of drought during this period.

The primary conclusion of the notice is that for any applicable region that includes a county on this list, the 12-month period ending August 31, 2025, is not a drought-free year.

Therefore, any eligible farmer or rancher whose four-year replacement period was scheduled to expire at the end of 2025 (or at the end of a fiscal year that includes August 31, 2025) will receive an automatic extension if their applicable region includes any county listed in the notice's appendix. The replacement period is extended until the end of the taxpayer's first tax year ending after a future drought-free year is declared for that region. For a calendar-year taxpayer whose replacement period was due to end on December 31, 2025, this provides at least one additional year to replace the livestock and continue deferring the gain.

Practitioners advising clients in this area should consult the appendix of Notice 2025-52 to determine if a client’s county, or any contiguous county, is listed, thereby qualifying them for this valuable extension. Further details and examples can be found in Publication 225, Farmer's Tax Guide, and the original guidance in Notice 2006-82.

Prepared with assistance from NotebookLM.