Eighth Circuit Determines CRP Payments Are Not Subject to SE Tax for Non-Farmers

By Joshua A. Diveley.

The U.S. Court of Appeals for the Eighth Circuit has reversed a prior decision of the U.S. Tax Court and found that Conservation Reserve Program (CRP) payments made to non-farmers constitute rentals from real estate for purposes of §1402(a)(1) and are excluded from the self-employment tax.

The Tax Court previously ruled in favor of the IRS and found that a non-farmer who inherited rental farm ground, signed a CRP agreement with the federal government and engaged agents to perform the landowner’s requirements under the agreement was in the trade or business of farming and was therefore subject to self-employment tax on the CRP payments.

The Eighth Circuit reversed the decision and determined that prior IRS guidance and court cases have found that a non-farmer should be distinguished from an farmer active in the farming operation and applied that distinction to the present facts.

See Rollin Morehouse v. Commissioner of the IRS available at: http://media.ca8.uscourts.gov/opndir/14/10/133110P.pdf

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