AGRIBUSINESS: Court Rules Conservation Program Not Subject to Self-Employment Tax

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In the beginning of October, during the case Morehouse v. Commissioner, the Eighth Circuit Court of Appeals decided if Conservation Reserve Program (CRP) payments can be taxed by self-employment.

A landowner signs a contract with USDA to enroll land in CRP. The government then makes payments to the landowner as he or she follows certain conservation measures outlined in the contract.

The IRS argued the requirements of CRP contracts, like seeding cover crops and maintaining weeds, can place taxpayers in a trade or business, which requires self-employment tax.

The court ruled these payments are rental payments, so it's excluded from self-employment tax.

Director of Iowa State University's Center for Ag Law and Taxation Roger McEowen says only a farmer's CRP payments are subject to self-employment taxes. CRP rental payments made to non-farmers are not, which the case's dissenting judge saw.

McEowen says, "He said 'This case only applies pre-2008, because of that Congressional change.' And that seems to indicate to me, he thinks, as I have thought, that CRP payments are rents from real-estate. Now, he didn't agree with the majority opinion on their analysis on the pre-2008 CRP rents at issue. But going forward, that statement indicates they're rent, which means our only task now, going forward, is to determine whether we've got material participation that takes the rents out of the exception."

McEowen says last week's ruling only applies within the Eighth Circuit, so Arkansas north to Minnesota, along with the Dakotas and Nebraska.


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