Compliance
Tax Compliance Essentials for Estimated Payments: Relief under Section 1062
If you’re making a Section 1062 election for farmland sales, new IRS rules ease penalties for underpaying estimated taxes — here’s how to meet the requirements and avoid surprises.
By NomadicTax Research Team • 5-8 min read • March 8, 2026
## What Is Section 1062: Deferral for Farmland Sales
Section **1062** allows owners of farmland sold to qualified farmers to **elect** to defer taxation on the gain by paying the tax in **four equal installments**, rather than a lump-sum payment in the year of sale. But with deferral comes the requirement to make **estimated income tax payments** as part of your compliance responsibilities. ([irs.gov](https://www.irs.gov/forms-pubs/the-irs-provides-estimated-tax-penalty-relief-for-farmland-sales-under-section-1062?utm_source=openai))
## Notice 2026-3: How the IRS Provides Penalty Relief
In **Notice 2026-3**, the IRS offers **abatement (waiver)** of portions of the penalty under section 6655 (failure to make estimated tax payments) for taxpayers who properly make the Section 1062 election. This relief is **applicable** when the underpayment is due solely to the election's deferral component for qualified farmland sales. ([irs.gov](https://www.irs.gov/forms-pubs/the-irs-provides-estimated-tax-penalty-relief-for-farmland-sales-under-section-1062?utm_source=openai))
Key points of relief:
- The portion of the penalty attributable to income reported in one chunk is treated as though it had been spread out in payments over the four-year period.
- If you already reported a penalty under sections 6654 or 6655 on your income tax return for the year of sale, you can file **Form 843** to **claim abatement**, noting “Abatement requested pursuant to Notice 2026-3.” ([irs.gov](https://www.irs.gov/irb/2026-02_IRB?utm_source=openai))
## Action Steps for Taxpayers Using Section 1062
- Before making the election, plan your cash flow to handle four years of payments instead of one.
- Document your election clearly, using proper IRS forms and elections as required by §1062.
- Use guidance in Notice 2026-3 to compute what your estimated payments would be under the election (as opposed to ordinary underpayment). The IRS may modify Form 1040-ES and related forms to reflect these rules. ([irs.gov](https://www.irs.gov/irb/2026-02_IRB?utm_source=openai))
- If you already filed and paid, but underpaid, you may seek retroactive relief via **Form 843**. Make sure you meet all procedural requirements.
For farmers facing large sales or transfers, Section 1062 paired with this penalty relief makes deferring income tax much more manageable — but strict compliance is essential.