U.S. Sen. Sam Brownback, R-KS, has introduced the Conservation Reserve Program Tax Fairness Act, which would ensure that farmers do not have to pay back or future self-employment Social Security taxes on Conservation Reserve Program (CRP) income.
U.S. Sen. Pat Roberts, R-KS, is a co-sponsor of the legislation.
"The Conservation Reserve Program Tax Fairness Act would ensure that farmers do not have to pay back or future self-employment social security taxes on CRP income," Brownback said. "A recent ruling from the 6th Circuit Court of Appeals overturns the status quo interpretation of this program as real estate rental income. This ruling makes CRP income subject to self employment social security tax--a tax rate of 15%--and also made the tax retroactive back to 1996.
"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 retro-active penalties on their investments. At a time when farmers are struggling to get back on their feet economically and do the right thing environmentally--it is vital that Congress demonstrate its support by upholding its promise on CRP," Brownback said.
"Our bill addresses a punitive ruling that would cost farmers millions of dollars in taxes," Senator Roberts said. "Since the inception of the Conservation Reserve Program, Congress has intended CRP income to be treated as rental income, not regular farm income. That the courts would rule to allow the Internal Revenue Service to collect self-employment taxes retroactively to 1996 is unfair. Now is not the time to add another tax burden on our struggling farmers.
"The CRP program has had enormous conservation and wildlife benefits, especially for states like Kansas. The decision by the tax court threatens to penalize producers who are trying to do the right thing by protecting fragile land that is sensitive to erosion and provide vital wildlife habitat," Roberts said.
Currently, CRP is subject to income tax, but not self-employment Social Security tax, because it is a rental payment the government makes in exchange for farmers taking environmentally sensitive land out of production--treated the same as if a farmer rented out his land to another party. The original IRS attempt to collect taxes on CRP income was rejected by the Tax Court in 1998; however, last month, the IRS prevailed with the 6th Circuit Court of Appeals to retroactively collect the tax.
Co-sponsors of the Conservation Reserve Tax Fairness Act are Senators Tom Daschle (SD), Rod Grams (MN), Bob Kerrey (NE), Ashcroft (MO), DeWine (OH), Inhofe (OK), Dorgan (ND), Conrad (ND), Lugar (IN), Bond (MO), Johnson (SD), Bunning (KY), Craig (ID) Hagel (NE) and Grassley (IA).