[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1033(e)-1]

[Page 126-127]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1033(e)-1  Sale or exchange of livestock solely on account of drought.

    (a) The sale or exchange of livestock (other than poultry) held for 
draft, breeding, or dairy purposes in excess of the number the taxpayer 
would sell or exchange during the taxable year if he followed his usual 
business practices shall be treated as an involuntary conversion to 
which section 1033 and the regulations thereunder are applicable if the 
sale or exchange of such livestock by the taxpayer is solely on account 
of drought. Section 1033(e) and this section shall apply only to sales 
and exchanges occurring after December 31, 1955.
    (b) To qualify under section 1033(e) and this section, the sale or 
exchange of the livestock need not take place in a drought area. While 
it is not necessary that the livestock be held in a drought area, the 
sale or exchange of the livestock must be solely on account of drought 
conditions the existence of which affected the water, grazing, or other 
requirements of the livestock so as to necessitate their sale or 
exchange.
    (c) The total sales or exchanges of livestock held for draft, 
breeding, or dairy purposes occurring in any taxable year which may 
qualify as an involuntary conversion under section 1033(e) and this 
section is limited to the excess of the total number of such livestock 
sold or exchanged during the taxable year over the number that the 
taxpayer would have sold or exchanged if he had followed his usual 
business practices, that is, the number he would have been expected to 
sell or exchange under ordinary circumstances if there had been no 
drought. For example, if in the past it has been a taxpayer's practice 
to sell or exchange annually one-half of his herd of dairy cows, only 
the number sold or exchanged solely on account of drought conditions 
which is in excess of one-half of his herd, may qualify as an 
involuntary conversion under section 1033(e) and this section.
    (d) The replacement requirements of section 1033 will be satisfied 
only if the livestock sold or exchanged is replaced within the 
prescribed period with livestock which is similar or related in service 
or use to the livestock sold or exchanged because of drought, that is, 
the new livestock must be functionally the same as the livestock 
involuntarily converted. This means that the new livestock must be held 
for the same useful purpose as the old was held. Thus, although dairy 
cows could be replaced by dairy cows, a taxpayer could not replace draft 
animals with breeding or dairy animals.
    (e) The provisions of Sec. 1.1033(a)-2 shall be applicable in the 
case of a sale or exchange treated as an involuntary conversion under 
this section. The details in connection with such a disposition required 
to be reported under paragraph (c)(2) of Sec. 1.1033(a)-2 shall 
include:
    (1) Evidence of the existence of the drought conditions which forced 
the sale or exchange of the livestock;
    (2) A computation of the amount of gain realized on the sale or 
exchange;
    (3) The number and kind of livestock sold or exchanged; and

[[Page 127]]

    (4) The number of livestocks of each kind that would have been sold 
or exchanged under the usual business practice in the absence of the 
drought.
    (f) The term involuntary conversion, where it appears in subtitle A 
of the Code or the regulations thereunder, includes the sale or exchange 
of livestock described in this section.
    (g) The provisions of section 1033(e) and this section apply to 
taxable years ending after December 31, 1955, but only in the case of 
sales or exchange of livestock after December 31, 1955.

[T.D. 6500, 25 FR 11910, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960. 
Redesignated by T.D. 7625, 44 FR 31013, May 30, 1979]