Congressional Research Service Issues Report on Farm Bill CRP Provision - July 2008

July 9, 2008 | Roger McEowen


In yet another Congressional Research Service (CRS) report on the Conservation Reserve Program (CRP), the CRS focuses on the final CRP provision include in the recently enacted Farm Bill (P.L. No. 110-246).  The Report notes that over the past several sessions of the Congress, numerous bills have been introduced which would exclude CRP payments from self-employment tax by defining CRP payments in a manner such that they would not be included in self-employment income.  While most of those bills were referred to committee, no hearings were held.  But, the Congress took a different approach with the issue as the Farm Bill began to be formulated – exclusion of CRP payments for select taxpayers only, and a tax credit in lieu of CRP payments.  The tax credit approach was not included in the final version of the Farm Bill, but the partial exclusion provision was included.   That provision excludes CRP payments from self-employment income for taxpayers receiving regular retirement benefits from Social Security as well as those receiving Social Security disability benefits.  The CRS Report notes that the provision is silent as to the treatment of CRP payments in the hands of other taxpayers.  In other words, the Congress did not address the core issue – when is a taxpayer conducting a trade or business such that the CRP payments would be subject to self-employment tax.

The Report notes the current position of the IRS is that all CRP payments (except those that are now statutorily excluded) are to be reported as self-employment income, and also notes that the IRS position may not be correct insomuch as the IRS has blurred the lines concerning the trade or business issue and that taxpayers have substantive arguments available for the exclusion of CRP payments from self-employment income. 

In explaining the Farm Bill CRP provision, the Report notes that the exclusion of CRP payments from the definition of income subject to self-employment tax for those receiving regular Social Security retirement benefits not only excludes CRP payments from self-employment tax, but also does not create additional income that could reduce the recipient’s Social Security benefits.  As for Social Security disability benefit recipients, the Report notes that not only will CRP payments not be subject to self-employment tax, the income will likely not be considered evidence of an ability to engage in substantial gainful activity (which would disqualify the recipient from disability benefits).

Importantly, the Report notes that the exclusion of CRP payments from self-employment income for Social Security beneficiaries is consistent with the notion that retired persons do not become engaged in the trade or business of farming simply by enrolling land in the CRP.  Thus, as the Report notes, the provision does not appear to place a limit on the exclusion of CRP rents from self-employment income for retired persons receiving Social Security retirement benefits.  Such a person could receive retirement benefits and return to being actively engaged in farming and still exclude CRP payments from self-employment income.  "The 2008 Farm Bill:  Analysis of Tax-Related Conservation Reserve Program Proposals," RS 22910, Jul. 3, 2008.