Farm Bureau Calls for End to CRP Taxation

July 27, 2000

Congress must approve legislation to ensure equitable tax treatment for farmers and ranchers who lease environmentally sensitive land to the government or participate in other federal programs that benefit the environment, the American Farm Bureau Federation told a Senate Finance subcommittee.

An appellate court earlier this year ruled that farmers and ranchers must pay a 15.3% self-employment tax on Conservation Reserve Program payments, while non-farmer landowners who accept the same payments are not assessed the levy. A Farm Bureau representative told the panel that this inequity is unjust and may deter producers from protecting fragile land.

"This issue not only has impact on farmers and ranchers, but also on the environment," Pennsylvania Farm Bureau President Guy Donaldson told senators. "Self-employment tax on CRP payments may discourage a farmer from future participation in this program. Environmentally sensitive acreage that has been taken out of production to protect its natural resources may be forced back into production if CRP payments are subject to self-employment taxes."

USDA annually disburses about $1.8 billion in CRP payments, averaging about $5,000 per farm and $45.15 per acre, to around 270,000 farm families.

Donaldson, a fruit and vegetable grower, said the Internal Revenue Service "singles out farmers and ranchers as landlords liable for the self-employment tax" while landowners holding CRP contracts who are not materially involved in a farm operation are excused from the 15.3% tax. Sens. Sam Brownback (R-KS) and Tom Daschle (D-SD) have introduced legislation to clarify that CRP payments should not be subject to additional taxes. The AFBF supports the bill.

In addition, Donaldson commended Sen. Max Baucus (D-MT) for legislation that would provide tax-free incentives to landowners who protect species habitat. He noted that landowners willingly bear part of the cost for species conservation projects and he urged committee members to provide additional funding to ensure the cost-share funds for this program are not taxable.