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)
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)
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)
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)
- 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.