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Post Date:  10/12/2015
Last Updated:  10/12/2015

Summary
Cross References
- Morehouse, 140 T.C. No. 16, June 18, 2013
- Morehouse, 8th Cir. Court of Appeals, October 10, 2014
- IRB No. 2015-41, October 13, 2015

The Conservation Reserve Program (CRP) was established under the Food Security Act of 1985 (Public Law 99-198). Under the CRP, the U.S. Department of Agriculture (USDA) may enter into contracts with owners and operators of land to conserve and improve the soil, water, and wildlife resources of the land, and to address issues raised by State, regional, and national conservation initiatives. Owners and operators of land agree to implement a conservation plan and refrain from using the land for agricultural purposes. In return, the USDA shares the cost of carrying out the conservation plan and pays the owner or operator an annual rental payment.

In a recent court case, the court addressed the issue of whether or not CRP payments are subject to self-employment tax (SE tax) under IRC section 1402 for a taxpayer who owns land as investment property who otherwise is not engaged in the business of farming. The taxpayer worked as a regional sales manager and as an associated publisher. He also acquired tillable cropland in South Dakota. He did not personally farm any of the land but instead rented it to various individuals who farmed their rented portions. When the taxpayer retired from his corporate job, he continued to manage his various investments and property interests, including his South Dakota cropland.

In 1997, the taxpayer submitted applications to the USDA, offering for enrollment in the CRP some of the tillable land he owned in South Dakota. His applications were accepted, and the Commodity Credit Corporation (CCC) executed the resulting CRP contracts with respect to the taxpayer’s properties. The taxpayer personally assumed all obligations and responsibilities of compliance under the CRP contracts. None of the contracts identified anyone else besides the taxpayer as the operator of the farm land.

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