IRS says not farming is just like farming, for self-employment tax purposes. Last year the Eighth Circuit Court of Appeals ruled that non-farmers are not subject to self-employment tax on conservation reserve program payments received for not planting land. The IRS yesterday announced (AOD 2015-02) that it disagrees with the decision. It said that it will follow the decision only within the Eighth Circuit, and even there only for pre-2008 payments.
The Eighth Circuit panel said that CRP payments are properly treated for non-farmers as rentals from real estate, which are not subject to SE tax. The IRS says it still disagrees, and it said that a 2008 law change “clarified” things (my emphasis):
In addition, the 2008 amendment to section 1402(a)(1) to treat CRP payments made to Social Security recipients as rentals from real estate effective for tax years beginning after December 31, 2007, served to clarify that other CRP payments are not excluded as rentals from real estate. Congress neither enacted a blanket exclusion with respect to CRP payments (or CRP payments made to non-farmers) nor evidenced any disagreement with the analysis of the Sixth Circuit in Wuebker. Although the statutory amendment does not apply to the years at issue in Morehouse, the implication is that prior to the amendment, CRP payments to farmers and non-farmers alike are not excludible from self-employment income as rentals from real estate. If these payments were already excluded as rental payments then the amendment would have been unnecessary. After the amendment, the implication is that CRP payments to farmers and non-farmers alike are not excludible from self-employment income unless made to Social Security recipients.
That conclusion may not go unchallenged. Roger McEowen of the Iowa State University Center for Agricultural Law and Taxation had a different take after the Eighth Circuit decision came down:
For CRP rents paid after 2007, the question is whether the recipient is a materially participating farmer.
That means the IRS can be expected to reject refund claims for SE tax paid by those not receiving Social Security payments. From the AOD:
We recognize the precedential effect of the decision in Morehouse to cases appealable to the Eighth Circuit. Accordingly, we will follow Morehouse within the Eighth Circuit only with respect to cases in which the CRP payments at issue were both (1) paid to an individual who was not engaged in farming prior to or during the period of enrollment of his or her land in CRP and (2) paid prior to January 1, 2008 (i.e., the effective date of the 2008 amendment to section 1402(a)(1)). We will continue to litigate the IRS position in the Eighth Circuit in cases not having these specific facts. We will also continue to litigate the IRS position in all cases in other circuits.
Robert D. Flach has a fresh Friday Buzz roundup of tax bog posts, with items including the awfulness of the coming tax season, state tax fairness, and the savers tax credit.
Kay Bell, Bartering is a great — and taxable — way to buy and sell. A lack of cash doesn’t mean a lack of tax.
Jim Maule, In What Year Should a Prize Be Reported as Gross Income?. “The question is simple. When a person wins a prize, in what year should the person report the income on the federal income tax return?”
Sheldon Kay, “Judging Litigating Hazards – Another View” (Procedurally Taxing). “He [Keith Fogg] also suggests that Appeals officers “with little or no knowledge of litigation” cannot properly analyze evidentiary questions or properly evaluate hazards of litigation. I respectfully disagree with his assessment.”
Annette Nellen, Challenges of base broadening
Alan Cole, Cadillac Tax Working as Planned on Auto Workers (Tax Policy Blog). ”
The situation above is not a mistake in the Affordable Care Act; rather, it is the Cadillac tax fulfilling both of its intended goals.
The first goal is to encourage substitution from employer health benefits back towards ordinary compensation, like wages and salaries…
The second goal of the Cadillac Tax is to raise revenue.
By delaying the painful parts, the bill fooled enough people long enough to get enacted. Now the rubes are catching on, but it’s too late.
TaxProf, The IRS Scandal, Day 869
Norton Francis, The Trouble with State Tax Triggers (TaxVox). “Here’s how a tax trigger works: A state cuts taxes over a period of years. There may be an initial tax cut that takes effect right away but future reductions are tied to some other benchmark, typically (but not always) achieving an overall revenue target.”
Sebastian Johnson, Maine Republicans Double Down on Tax Cut Fervor (Tax Justice Blog).
If only he had been regulated by the IRS. Oh, wait… IRS Agent Busted for Extorting Money From Marijuana Dispensary Owner (High Times, Via the TaxProf)