Section 180 IRS Requirements

By Alec Bean, CCA
Last reviewed 9/21/26. How we review

Short answer: The IRS has said a buyer may be able to write off unexhausted fertilizer bought with farmland only if they prove three things: how much of the soil’s fertility came from fertilizer the prior owner applied, that it’s being used up (and how fast), and that they own the land it’s in. Those conditions come from a 1991 ruling in which the IRS turned the taxpayer down.

The ruling everyone cites — and what really happened

Technical Advice Memorandum 9211007 was issued December 3, 1991 (text). Some articles cite it as “9211067”; the correct number is 9211007.

The facts: two shareholders of a farm corporation bought a farm in 1988. They bought the land and house personally; the corporation bought the buildings, irrigation equipment, grain bins and the “residual fertilizer supply.” The seller had owned the land 14 years and reportedly applied a semi-load of fertilizer each year. The shareholders rented the land to the corporation, which tried to amortize the fertilizer over seven years.

The IRS framed the question as whether the corporation could amortize a capitalized cost — not as a Section 180 election. Its starting rule: without the election, fertilizer costs are “chargeable to a capital account” and amortizable “over the period of the fertilizer’s effectiveness,” but only if the taxpayer “in fact paid or incurred costs for the fertilizer and is exhausting it.” It then denied the deduction for three separate reasons. Each one is now a requirement.

A 1995 IRS audit technique guide for grain farmers repeated these points and told examiners to check that values assigned to farm assets are reasonable. That guide is out of print and doesn’t count as authority (CALT).

How much weight does a TAM carry?

By statute, a TAM “may not be used or cited as precedent” (IRC §6110(k)(3)) — it applies only to the taxpayer who asked. But a TAM issued after October 31, 1976, can count toward “substantial authority” when deciding whether a penalty applies. In practice: following the TAM’s conditions won’t guarantee the deduction survives, but it can help keep a failed position from also drawing a 20% accuracy penalty. See Audit risk and penalties.

Requirement 1 in the field: proving where the fertility came from

This is the requirement most valuations skip. A soil test tells you what’s in the ground today. It doesn’t tell you whether a high phosphorus reading came from the seller’s applications or from the soil’s parent material. The ruling specifically rejected using nearby farms as the yardstick.

A defensible report builds the link from the parcel’s own history:

1. Collect the seller’s records. Fertilizer and lime invoices, co-op or custom-application tickets, manure applications, and any nutrient-management plan, ideally for five years or more. Ask for them before closing, when you have leverage.
2. Collect prior soil tests. Earlier tests on the same fields show whether levels rose over the seller’s ownership.
3. Run a nutrient balance. Pounds applied minus pounds removed by harvested crops (using yield records and university removal rates) estimates the build-up.
4. Sample at purchase. Parcel-specific grid or zone sampling at the depth your state’s land-grant university recommends, analyzed by an accredited lab, before any new fertilizer.
5. Define “excess” agronomically. Compare results to your state university’s critical or sufficiency level — the level above which the crop isn’t expected to respond. Fertility above that level, traceable to steps 1–3, is the candidate for deduction.
6. Value it at purchase-date prices. Convert pounds of nutrient to dollars using a published fertilizer price series for the purchase month, and document the source.

Requirement 2 in the field: showing it’s being used up

The taxpayer in the ruling lost partly because their fertility wasn’t going down. That creates a management tension: if you keep applying the same nutrients, you prevent the drawdown you’re claiming.

• Write a drawdown schedule: how many crop years until each nutrient falls to the critical level, based on expected removal.
• Re-test on a regular schedule (every one to two years) and keep the reports.
• If you apply maintenance fertilizer, record it separately so the drawdown of purchased fertility can still be tracked.

Requirement 3: ownership and structure

The deduction belongs to whoever owns the land. If you own land personally and farm through an LLC or corporation, the entity generally can’t claim it. The owner must also be “in the business of farming” to use Section 180 — an owner-operator, crop-share landlord, or a cash-rent landlord who materially participates.

Section 180 expensing vs. amortization

The taxpayer in the ruling tried to amortize over seven years. The ruling didn’t address Section 180. Iowa State’s Kristine Tidgren reasons that if unexhausted fertilizer can be amortized, a qualifying farmer can likely expense it under Section 180 instead — but only for fertilizer, not “soil nutrients” generally (CALT). If you don’t qualify for Section 180, amortization over the proven exhaustion period may still be available.

The price-allocation limit

Even a well-proven residual fertilizer supply can’t be deducted at more than its share of what you paid. When the agronomic value plus the value of the land without that fertility exceeds the purchase price, the price is divided in proportion to the two values. Example from the University of Illinois Tax School: land bought at $8,000 per acre, fertility valued at $4,000, comparable land without the fertility at $7,000 — the fertility’s share is 4,000 ÷ 11,000, or about $2,912 per acre, not $4,000 (source). Our reports show both numbers.

Where advisors disagree

Next:Who qualifies, Buyer timeline, Audit risk and penalties

Sources

• TAM/PLR 9211007 (Dec. 3, 1991)
• Tidgren, Considering the Residual Fertility Deduction, Iowa State CALT
• Tidgren & Coutu, USDA webinar deck, July 2025
• McEowen, U of I Tax School
• 26 U.S.C. §180