Compliance
How Not to Overpay Your IRS Penalties: Relief Under Section 1062 for Farmland Owners
Farmland owners and farmers can avoid hefty estimated tax penalties under the One, Big, Beautiful Bill by making the Section 1062 election — here’s how.
By NomadicTax Research Team • 5-8 min read • March 20, 2026
## What Is the Section 1062 Election?
Section 1062 is part of the **One, Big, Beautiful Bill Act (Public Law 119-21)**. It allows taxpayers who sell or exchange qualified farmland property to a qualified farmer to **defer payment of the tax associated with that sale or exchange**, paying over four years instead of all at once. Notice 2026-3 from the IRS provides relief for addition-to-tax penalties under **sections 6654 and 6655**, which typically penalize underpayments of estimated income tax. ([eitc.irs.gov](https://www.eitc.irs.gov/pub/irs-drop/n-26-03.pdf?utm_source=openai))
## Actionable Steps to Qualify for the Relief
If you're a farmland owner, here’s what you need to do:
- **Check eligibility:** Your sale or exchange must be for *qualified farmland property*, and you must make the **Section 1062 election** properly. ([irs.gov](https://www.irs.gov/irb/2026-02_IRB?utm_source=openai))
- **Make the election on time:** Without a valid Section 1062 election, the IRS won't apply Relief. Require filing of tax return with the election under Section 1062(a). ([eitc.irs.gov](https://www.eitc.irs.gov/pub/irs-drop/n-26-03.pdf?utm_source=openai))
- **Estimated tax payments:** Typically, you’d need to pay quarterly estimated tax under sections 6654/6655. Under the election, the IRS waives part of penalties attributable to the deferred portion. Pays only required minimum (e.g., 25% of net tax liability due with regular return filing) instead of full amount early. ([eitc.irs.gov](https://www.eitc.irs.gov/pub/irs-drop/n-26-03.pdf?utm_source=openai))
- **If you’ve already filed and paid penalties:** File **Form 843, Claim for Refund and Request for Abatement**, noting **"Abatement requested pursuant to Notice 2026-3"**. ([eitc.irs.gov](https://www.eitc.irs.gov/pub/irs-drop/n-26-03.pdf?utm_source=openai))
## Examples to Clarify
| Scenario | Without Section 1062 | With Section 1062 Election & Notice 2026-3 Relief |
|---|---|---|
| Farmer A sells farmland for $500,000; tax liability is $100,000 but chooses to defer $60,000 via Section 1062. | All estimated tax penalties apply unless $100,000 in estimated payments are made throughout year. | Penalties on deferred $60,000 portion are **waived**, only required payments on $40,000 apply until return due date. |
| Farmer B already paid full amount estimated to avoid penalties but still got penalty notice. | No relief without election—penalties stay. | File Form 843 to abate penalties under Notice 2026-3. |
## Implications & Considerations
- This relief is **automatic** if eligible and no underpayment is self-reported. ([eitc.irs.gov](https://www.eitc.irs.gov/pub/irs-drop/n-26-03.pdf?utm_source=openai))
- Inflation can affect qualified thresholds (income, deduction limits), stay current. The standard deduction and other amounts rose for 2026 under the OBBB. ([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
- Be diligent about records: documentation of the sale, election filings, schedule of payments. If audited, having complete paper trail matters.
## Bottom Line
If you qualify for Section 1062, making the election can meaningfully reduce or eliminate estimated tax penalties tied to a farmland sale. Review eligibility, ensure deadline compliance, and consider how this affects your broader tax planning.