Bill Seeks to Pre-empt IRS on CRP Rentals

April 6, 2000

A bill has been introduced in the Senate that would override the Internal Revenue Service’s ability to apply Social Security taxes to income derived from Conservation Reserve Program rental payments. A court decision allows the IRS to collect 15.3% of a farmer’s income from CRP rental payments back to 1996.

In February, a circuit court decision overruled a 1998 tax court decision that CRP payments were not considered farm income and therefore not subject to self-employment taxes. The circuit court decision allows the IRS to retroactively collect 15.3% of the payment income.

Sen. Sam Brownback (R-KS), one of the bill’s sponsors, said, "This could not come at a worse time for American producers who have been hit with low prices, bad weather and rising fuel costs. This ruling not only ignores the intent of Congress in creating CRP, it sets up a disincentive for farmers to pursue environmentally pro-active measures in the future, since they must fear retroactive penalties on their investments."

Since the beginning of the CRP, said Sen. Pat Roberts (R-KS), another of the bill’s sponsors, Congress has intended that CRP income be treated as rental income not regular farm income. "That the courts would rule to allow the IRS to collect self-employment taxes retroactively to 1996 is unfair. Now is not the time to add another tax burden on our struggling farmers."

"When I read that the IRS not only pursued but won its case to apply Social Security taxes to CRP rental income, I was outraged," said Sen. Rod Grams of Minnesota, another sponsor. "At a time when farmers are in distress and the Congress is pursuing avenues to help farmers through these difficult times, it is ridiculous that the IRS would be in court attempting to force new taxes on farmers."

Also sponsoring the bill are Sens. Bob Kerrey (D-NE), Tom Daschle (D-SD), John Ashcroft (R-MO), Mike DeWine (R-OH), James Inhofe (R-OK), Byron Dorgan (D-ND), Kent Conrad (D-ND), Richard Lugar (R-IN), Christopher Bond (R-MO), Tim Johnson (D-SD), Larry Craig (R-ID), Chuck Hagel (R-NE), Charles Grassley (R-IA) and Jim Bunning (R-KY).