Congressional Research Service Issues Report on Self-Employment Tax Treatment of CRP Payments

April 25, 2008 | Roger McEowen


In the second of the Reports, issued on April 14, the CRS examined the tax treatment of CRP payments, including whether such payments should be treated as farming income subject to self-employment tax, rents from real estate, or neither.  The Report notes that the historic position of the IRS was to subject CRP payments to self-employment tax only upon receipt by someone engaged in the trade or business of farming.  However, the Report notes that the IRS position has changed such that the present IRS position is to always treat CRP payments as subject to self-employment tax irrespective of whether the recipient is engaged in the trade or business of farming.  While the report notes the U.S. Supreme Court’s 1987 opinion in Groetzinger  - the case that established the rule that a determination of whether a particular taxpayer is engaged in a trade or business depends on the facts and circumstances of each situation – the Report refers to it merely as “case law” and does not provide any analysis of the case as applied to the CRP setting.

The Report also fails to note that IRS Announcements and Notices are not substantial authority (indeed, even IRS is not bound by them let alone taxpayers – see Schering Plough Corp. v. United States, No. 2:05-cv-02575, 2007 U.S. Dist. LEXIS 88387 (D. N.J. Dec. 3, 2007)(IRS Field Service Advice not binding on taxpayers or on IRS; rationale of court likely applicable to other IRS correspondence issued without taxpayer request of right to a conference – such as Notices and Announcements).  Accordingly, the Report falls short in its analysis for not pointing out that the test for determining whether a taxpayer is engaged in a trade or business has been established by the U.S. Supreme Court.  For an administrative agency to attempt to redraw the line in the face of contrary Supreme Court authority is preposterous.

Download report: CRSCRPReport2.pdf