U. S. Tax Court says non-farmer Texas resident must pay self-employment tax on Conservation Reserve Program land inherited in South Dakota.
A non-farmer’s Conservation Reserve Program income can be hit with self-employment tax, said U.S. Tax Court in a ruling last year, which involved a Texas resident who inherited farm land in South Dakota.
“Since the late 1980s, the IRS and the courts have issued various rulings, advices, notices and opinions concerning the issue of whether CRP payments are subject to self-employment tax,” says Roger McEowen, Leonard Dolezal Professor of Agricultural Law at Iowa State University. “Until 2003, the IRS always took the position that a taxpayer had to be materially participating in a farming operation for CRP payments to be subject to self-employment tax.”
The courts agreed, but in 2003, the IRS took the position that the signing of a CRP contract resulted in the signing taxpayer being engaged in the trade or business of farming with the result that CRP payments were subject to self-employment tax. Last year, the U.S. Tax Court agreed with the IRS, he said.