Rev. Rul. 56-496

A farmer, who rents all or a part of his crop land on a crop share basis, under a bona fide rental agreement, and who receives crop shares as rent, shall report such crop shares as rental income only as of the year in which they are reduced to money, or the equivalent of money, irrespective of whether he employs the cash or accrual method of reporting income. See section 61 of the Internal Revenue Code of 1954 and section 39.22(a)-7(c) of Regulations 118, applicable by virtue of Treasury Decision 6091, C.B. 1954-2, 47. Crop shares received as rent and on hand at the end of the taxable year should not be included in inventory by a farmer employing the accrual method of reporting income. Where a farmer reduces his crop shares, received as rent, to money or its equivalent by their sale or exchange for other commodities, the cash and/or value of the commodities received represents rental income and, if he has attained the age of 65 before the close of the taxable year, such rental income also represents retirement income. See section 37(c)(1) of the Code. However, where a farmer feeds his crop shares, received as rent, to his livestock, the value of the crop shares does not represent rental income either for the purpose of computing retirement income credit, or other Federal income tax purposes, or for the purpose of computing net earnings from self-employment under the Self-Employment Contributions Act of 1954, irrespective of the purpose for which the livestock is held, since his crop shares are not considered as having been reduced to money or its equivalent at the time fed to the animals or at the time the animals are sold.