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We acknowledge that the word “substantial” appears in other
contexts throughout the Internal Revenue Code as well as
throughout the regulations and often is used to refer to “less
than 50 percent”.4
Although the statutory and regulatory provisions are not
free of ambiguity, we agree with respondent’s position. As
explained, the legislative history of the deferral provision of
section 451(d) makes it clear that Congress was concerned not
about “all” mismatches between years of a farmer’s income and
expenses. Rather, Congress was concerned about farmers whose
crops were produced in one year but sold in and therefore
generated income only in the following year.
The stipulated evidence does not tell us when WJS-LLP and
WJS-Partnership sold their sugar beet crops--in the year of
production or in the following year (or over the course of both
years). The stipulated evidence does not explain to us the basis
for the apparent accounting and tax convention used in the sugar
4 For example, under sec. 45D(d)(2)(A)(ii) and (iii),
relating to the qualified status of an active low-income
community business in connection with the new markets tax credit,
“substantial” refers to 40 percent of tangible business assets
and services in a low-income community. Sec. 1.45D-1(d)(4)(i)(B)
and (C), Income Tax Regs.
Under sec. 6662(d)(1)(A), “substantial” may refer to an
understatement of tax of just 10 percent of the tax required to
be shown on a return.
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Last modified: March 27, 2008