DESCRIPTION OF H.R. 3957, 

THE “EMERGENCY CITRUS DISEASE RESPONSE ACT”

Scheduled for Markup 

by the 

HOUSE COMMITTEE ON WAYS AND MEANS 

on September 14, 2016 

Prepared by the Staff 

of the 

JOINT COMMITTEE ON TAXATION 

 

September 13, 2016 

JCX-70-16
i 

CONTENTS 

Page 

INTRODUCTION .......................................................................................................................... 1

A. Expensing of Certain Costs of Replanting Citrus Plants Lost by Reason of Casualty ....... 2

B. Estimated Revenue Effect ................................................................................................... 5
1 

INTRODUCTION 

The House Committee on Ways and Means has scheduled a committee markup of 

H.R. 3957, the “Emergency Citrus Disease Response Act,” on September 14, 2016. This 

document,1

 prepared by the staff of the Joint Committee on Taxation, provides a description of 

the bill. 

 1

 This document may be cited as follows: Joint Committee on Taxation, Description of H.R. 3957, the 

“Emergency Citrus Disease Response Act” (JCX-70-16), September 13, 2016. This document can also be found on 

the Joint Committee on Taxation website at www.jct.gov. All section references herein are to the Internal Revenue 

Code of 1986, as amended, unless otherwise stated. 
2 

A. Expensing of Certain Costs of Replanting Citrus Plants 

Lost by Reason of Casualty 

Present Law 

In general 

The uniform capitalization (“UNICAP”) rules, which were enacted as part of the Tax 

Reform Act of 1986,2 require certain direct and indirect costs allocable to real or tangible 

personal property produced by the taxpayer to be either capitalized into the basis of such 

property or included in inventory, as applicable.3

 For real or personal property acquired by the 

taxpayer for resale, section 263A generally requires certain direct and indirect costs allocable to 

such property to be either capitalized into the basis of such property or included in inventory, as 

applicable. 

Section 263A generally requires the capitalization of the direct and indirect costs 

allocable to the production of any property in a farming business, including animals and plants 

without regard to the length of their preproductive period.4 The costs of a plant generally 

required to be capitalized under section 263(a) include preparatory costs incurred so that the 

plant’s growing process may begin, such as the acquisition costs of the seed, seedling, or plant. 

Under section 263A, the costs of producing a plant generally required to be capitalized also 

include the preproductive period costs of planting, cultivating, maintaining, and developing the 

plant during the preproductive period.5 Preproductive period costs may include management, 

irrigation, pruning, soil and water conservation, fertilizing, frost protection, spraying, harvesting, 

storage and handling, upkeep, electricity, tax depreciation and repairs on buildings and 

equipment used in raising the plants, farm overhead, taxes, and interest, as applicable.6

Special rules for plant farmers 

Section 263A provides an exception to the general capitalization requirements for 

taxpayers who raise, harvest, or grow trees.7 Under this exception, section 263A does not apply 

to trees raised, harvested, or grown by the taxpayer (other than trees bearing fruit, nuts, or other 

crops, or ornamental trees) and any real property underlying such trees. Similarly, the UNICAP 

rules do not apply to any plant having a preproductive period of two years or less, which is 

produced by a taxpayer in a farming business (unless the taxpayer is required to use an accrual 

 2

 Sec. 803(a) of Pub. L. No. 99-514 (1986). 

3

 Sec. 263A. 

4

 Treas. Reg. sec. 1.263A-4(b)(1). 

5

 Treas. Reg. sec. 1.263A-4(b)(1)(i). 

6

 Ibid. 

7

 Sec. 263A(c)(5). 
3 

method of accounting under section 447 or 448(a)(3)).8

 Hence, in general, the UNICAP rules 

apply to the production of plants that have a preproductive period of more than two years, and to 

taxpayers required to use an accrual method of accounting. 

Plant farmers otherwise required to capitalize preproductive period costs may elect to 

deduct such costs currently, provided the alternative depreciation system described in section 

168(g)(2) is used on all farm assets and the preproductive period costs are recaptured upon 

disposition of the product.9

 The election is not available to taxpayers required to use the accrual 

method of accounting. Moreover, the election is not available with respect to certain costs 

attributable to planting, cultivating, maintaining, or developing citrus or almond groves. 

Section 263A does not apply to costs incurred in replanting edible crops for human 

consumption following loss or damage due to freezing temperatures, disease, drought, pests, or 

casualty.10 The same type of crop as the lost or damaged crop must be replanted. However, the 

exception to capitalization still applies if the replanting occurs on a parcel of land other than the 

land on which the damage occurred provided the acreage of the new land does not exceed that of 

the land to which the damage occurred and the new land is located in the United States. This 

exception may also apply to costs incurred by persons other than the taxpayer who incurred the 

loss or damage, provided (1) the taxpayer who incurred the loss or damage retains an equity 

interest of more than 50 percent in the property on which the loss or damage occurred at all times 

during the taxable year in which the replanting costs are paid or incurred, and (2) the person 

holding a minority equity interest and claiming the deduction materially participates in the 

planting, maintenance, cultivation, or development of the property during the taxable year in 

which the replanting costs are paid or incurred.11

Description of Proposal 

The proposal modifies the special rule for costs incurred by persons other than the 

taxpayer in connection with replanting an edible crop for human consumption following loss or 

damage due to casualty. Under the proposal, with respect to replanting costs paid or incurred 

before January 1, 2026, for citrus plants lost or damaged due to casualty, such costs may also be 

deducted by a person other than the taxpayer if (1) the taxpayer has an equity interest of not less 

than 50 percent in the replanted citrus plants at all times during the taxable year in which the 

replanting costs are paid or incurred and such other person holds any part of the remaining equity 

 8

 Sec. 263A(d). 

9

 Sec. 263A(d)(3), (e)(1), and (e)(2). 

10 Sec. 263A(d)(2). Such replanting costs generally include costs attributable to the replanting, cultivating, 

maintaining, and developing of the plants that were lost or damaged that are incurred during the preproductive 

period. Treas. Reg. sec. 1.263A-4(e)(1). The acquisition costs of the replacement trees or seedlings must still be 

capitalized under section 263(a) (see, e.g., T.D. 8897, 65 FR 50638, Treas. Reg. sec. 1.263A-4(e)(3), Examples 1 - 

3, and TAM 9547002 (July 18, 1995)), potentially subject to the special bonus depreciation deduction in the year of 

planting under section 168(k)(5). 

11 Sec. 263A(d)(2)(B). Material participation for this purpose is determined in a similar manner as under 

section 2032A(e)(6) (relating to qualified use valuation of farm property upon death of the taxpayer). 
4 

interest, or (2) such other person acquires all of the taxpayer’s equity interest in the land on 

which the lost or damaged citrus plants were located at the time of such loss or damage, and the 

replanting is on such land. 

Effective Date 

The proposal is effective for costs paid or incurred after the date of enactment. 

 
5 

B. Estimated Revenue Effect 

Fiscal Years 

[Millions of Dollars] 

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-21 2017-26 

 

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