Reviewing the Information Block

 


The information block of Schedule F is where the farmer/rancher reports identifying and general information related to the farm business. It is also where certain compliance questions are asked.

The Name of the proprietor may be the name of an individual, a partnership, an estate or trust, or an LLC. For example, Raymond Green is the name of an individual who is a farmer. The Estate of Esther Meadows is an example of an entity conducting a farming business.

The Social Security Number (SSN) of the proprietor (an individual) is needed to identify the unique person operating the farm business. If the farm is profitable, and self-employment tax (social security) is paid, this payment will be credited to the proper individual’s account as reported on IRS Schedule SE, Self-Employment Tax, which is also attached to a sole proprietor’s IRS Form 1040. If the proprietor is an entity, the EIN will be entered in box D.

A Principal crop or activity is asked to generate a description of the farm products. Corn/Soybeans or Milk are examples. This information can be used by IRS and other agencies for statistical analysis.

B Enter code from Part IV is another way in which farmers/ranchers provide a code which can identify the farm or ranch by farm type. This information is used for statistical analysis by IRS, USDA, Department of Labor, and Department of Commerce for various research objectives (e.g., economic and business numbers), and is not merged with the unique personal information such as SSN and name for these purposes.  For example, the code 111100 is used to identify an oilseed and grain farm, while code 112120 identifies a dairy farm.  

C Accounting method: By ticking the Cash box, a farmer informs IRS that the reporting farm uses the Cash Method of Accounting, under which receipts are reported in the year received and expenses are reported in the year paid.  Farmers and ranchers using the cash method have unique rules which may be beneficial to their operation’s management. Two of those rules are: 1) the ability to pre-pay expenses which will be used in the subsequent year and not have the requirement to inventory these items, and 2) be able to defer disaster or crop insurance payments into the subsequent year if the sale of the lost or damaged crops historically is sold in the year following the crop’s production.  Overwhelmingly, farmers and ranchers use the cash method of accounting. Farmers using the accrual method of accounting would check the "accrual" box.

D Employer ID number (EIN). If the farmer has employees, he or she will have a unique Employer ID Number under which the employment taxes are reported so that, like self-employment taxes, the payments are credited to the correct account of the employer and the employee.  Similarly, if an entity, such as the Estate of Esther Meadows, operates a farm, an EIN is used to report the net income or loss from farming on Schedule F, with the net estate outcome reported on the fiduciary return. Partnerships and LLCs may also use Schedule F to report farm business activities and report the net outcome on the respective income tax return, IRS Form 1065.  Sometimes, as a matter of convenience, corporations may use Schedule F as a supporting document in the preparation of either an IRS Form 1120 (C corporation) or 1120S (S corporation). Its unique EIN identifies the corporation for this purpose.

E “Material Participation” identifies whether the farming activity is a “passive” activity subject to the Passive Activity Loss Rules under the I.R.C. Typically, a sole proprietor will tick “yes” because they meet the material participation rules based upon hours of activity or based upon the fact that they are the only person providing the labor and management to the farming activity. [I.R.C. § 469]

F Payments requiring the filing of Form(s) 1099:  This question alerts the farmer/rancher to consider whether they paid an unincorporated entity (individual or partnership) $600 or more for services benefiting their farm business during the tax year. Examples include machine hire, veterinarians, accountants, rents for land, and others service providers. If interest is paid to an individual as part of an installment contract the threshold is $10 to file a Form 1099.

G If “Yes” … did or will the farmer/rancher file: Schedule F is part of the tax return, and as such, this question is subject to perjury rules.  The Forms 1099 have a requirement to be provided to the IRS and to the recipient in a timely manner. The question provides IRS information to track compliance with issuing Information Returns such as 1099s.  Commonly used informational forms are 1099-NEC for non-employee compensation, 1099-MISC for rents, and 1099-INT for interest.

The Center for Agricultural Law and Taxation is a partner of the National Agricultural Law Center (NALC) at the University of Arkansas System Division of Agriculture, which serves as the nation’s leading source of agricultural and food law research and information. This material is provided as part of that partnership and is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.