Congressional Research Service Issues Report on Proposed Farm Bill CRP Tax Provisions
The Congressional Research Service (CRS), in the first of two Reports involving the Conservation Reserve Program (CRP), has addressed the proposed Farm Bill provisions that would change the taxation of CRP payments. The Report gives some background of the history involving the current controversy over the self-employment tax treatment of CRP payments, and notes that the IRS has changed its position on the issue over the years. The Report also notes that the current IRS position of subjecting all CRP payments to self-employment tax (regardless of whether the recipient is an active farmer) is in spite of the fact that they are called “rental payments” and that rental income from real property is generally excluded from self-employment income.
The Report doesn’t simply assume that the current IRS position on the self-employment tax treatment of CRP payments is correct, but instead notes that the current IRS position of treating CRP payments in the hands of any taxpayer is not only contrary to the initial IRS position that CRP payments were only subject to self-employment tax (by reference to the 1988 IRS Private Letter Ruling on the matter) if the taxpayer was materially participating in an existing farming operation, but that there remains an argument that CRP payments can be excluded from self-employment tax on current income tax returns. The Report notes that the Congress has made several attempts to statutorily exclude CRP payments from self-employment tax, but none of the attempts has become law.
But, the main point of the analysis is to explain the proposals in the pending Farm Bill legislation. The Report notes that the Farm Bill would exclude CRP payments from self-employment tax for some taxpayers, and would provide a tax credit as an optional alternative to receiving rental payments.
The CRS will issue a second Report in the near future dealing specifically with the controversy over self-employment tax treatment of CRP payments. We will have that Report when it is released.
Report on the Farm Bill CRP Provisions: CRP-CRS.pdf
Update: On April 22, CRS issued an updated Report concerning the Farm Bill CRP proposals: CRSCRPUpdate.pdf
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