2008 Farm Bill: Analysis of Tax-Related Conservation Reserve Program Proposals [Updated July 3, 2008] [open pdf - 72KB]
"The 2008 Farm Bill contained two tax-related proposals for the Conservation Reserve Program [CRP]. One of these proposals, which excludes the payments from selfemployment tax, was included in the final bill that became P.L. [Public Law] 110-246. The other, which would have allowed participants in the program to choose to receive a tax credit in lieu of the contracted annual payments, was deleted in the conference committee. The Conservation Reserve Program began in 1985 as a program designed to remove highly erodible croplands from current crop production. It was established by the Food Security Act of 1985 and has been expanded and extended by subsequent legislation. The program provides for 'annual rental payments' to land owners or operators who agree to enroll their qualifying land in the program. Enrollment requires them to remove land from production and, generally, refrain from using the land commercially. They must also follow an approved conservation plan. In return, they receive annual payments. These payments are referred to as 'rent' in the statute, regulations, and contracts. However, from the beginning, the Internal Revenue Service (IRS) has treated this income as self-employment income for those who continued to farm other land connected to the CRP land. Although the IRS initially treated the payments as rental income for those not otherwise engaged in farming, and, therefore, not subject to self-employment tax, that treatment has changed over the years. In 2006, the IRS issued a proposed revenue ruling that would treat virtually all CRP annual payments as self-employment income."
CRS Report for Congress, RS22910
National Agricultural Law Center: http:nationalaglawcenter.org/