The U.S. Tax Court has ruled Conservation Reserve Program payments don’t equate to cash rent, which means self-employment taxes must be paid on that income. Roger McEowen, director of the Iowa Center for Ag Law and Taxation, says the ruling has huge consequences for farmland investors and retired farmers who don’t collect Social Security benefits, because they’re now liable for taxes on CRP.
“They’re going to have to pay self-employment tax on those CRP rents, so that’s a big implication,” McEowen says. “The other big implication is, if the court’s language is broad enough, it would seemingly apply to other types of government contracts, such as urban housing, those type of things.”
McEowen says the ruling also means the government will pay out more in CRP payments and then collect it back with the self-employment tax and won’t come out ahead in terms of revenue generated. He says bids will be hiked in the CRP application process.
“If I know I’m going to have to pay an additional 15.3% on my CRP income, I’m going to increase my bid by at least that much,” he says. “If the government thinks they’re going to collect more revenue out of this, I doubt it. What’s going to happen long term is, they’re going to have to dole out more in CRP payments because landowners will just incorporate that additional tax into the bid amount.”
McEowen says it may take up to $35,000 just to appeal the tax ruling to the 8th Circuit Court of Appeals. He says it’ll likely take a coalition of ag groups, conservation groups and lenders banding together to raise the funds to make the appeal.
By Jerry Oster, WNAX, Yankton