7906 / What is a cattle feeding program? What is the tax effect of such programs?

Cattle feeding programs involve the purchase of immature cattle that are usually raised and fed under a contract with a feedlot that furnishes the feed and maintenance. The cattle are sold to a packing house when they reach the desired weight. Feeding programs typically last from four to nine months before the animals are marketable. The tax treatment of these programs, which are generally considered high-risk investments, was changed considerably by TRA ’86, reducing their popularity to a great extent.

Generally, limited partnerships and S corporations act as flow-through entities, and partners and shareholders report their share of the entity’s income, deductions, and credits on their own tax returns (see Q 7732). (Electing large partnerships have somewhat different flow-through rules than regular partnerships (see Q 7733).) However, if a publicly traded partnership is taxed as a corporation, the income, deductions, and credits are reported by the partnership and do not flow through to the partners. Electing 1987 partnerships are subject to both an entity level tax and the flow-through rules. In general, investment in a publicly traded partnership taxed as a corporation will be taxed as an investment in a corporation. See Q 7728 for the treatment of publicly traded partnerships.