[Congressional Record Volume 147, Number 20 (Tuesday, February 13, 2001)]
[Senate]
[Pages S1336-S1338]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BROWNBACK (for himself, Mr. Dorgan, Mr. Daschle, Mr. 
        Lugar, Mr. Levin, Mr. Roberts, Mr. Burns, Mr. Jeffords, Mr. 
        Baucus, Mr. DeWine, Mr. Harkin, Mr. Craig, Mr. Johnson, Mr. 
        Leahy, Mr. Bingaman,  and Mr. Bond):
  S. 315. A bill to amend the Internal Revenue Code of 1986 to treat 
payments under the Conservation Reserve program as rentals from real 
estate; to the Committee on Finance.
  Mr. BROWNBACK. Mr. President, I am speaking on a bill that I put in 
today, along with several cosponsors, regarding the Conservation 
Reserve Program Tax Fairness Act.
  To be a farmer today, you really need to be an optimist--about the 
weather, about farm prices, about our rapidly changing economy. But one 
thing farmers should not have to worry about is being additionally 
taxed for participating in a conservation program.
  I rise today to introduce the Conservation Reserve Program Tax 
Fairness Act of 2001. This bill would simply correct the tax treatment 
of one of our nation's most valuable conservation programs so that 
there is not a disincentive for farmers to be good stewards of the 
land.
  I am joined in this effort by Senator Dorgan who has taken an active 
role on this issue last year and serves as the lead cosponsor of the 
bill this year. This bill is also co-sponsored by Senators Daschle, 
Lugar, Levin, Roberts, Burns, Jeffords, Baucus, DeWine, Harkin, Craig, 
Johnson, and Leahy.
  As you can see, Mr. President, this bill has the bipartisan support 
of many in the Senate because it is just common sense. In a time when 
the farm economy continues to suffer and conservation efforts are more 
important than ever, we should be doing everything we can to make 
conservation efforts more appealing, not less. And if there is one 
truth that is pretty evident here, it is that if you want less of 
something, than tax it. Well, Mr. President, I think we can all agree 
that we want more conservation, not less, and therefore, we need to 
correct this tax interpretation.
  The Conservation Reserve Program, or CRP, has been a great success 
for this Nation. The program provides financial incentives for 
improving and preserving environmentally sensitive land, taking it out 
of production and enhancing its environmental benefit. The CRP program 
increases water quality, wildlife habitat and prevents soil erosion--
all factors which have become even more important in light of recent 
concerns about nonpoint source pollution in our nation's waterways.
  Specifically, this measure clarifies once and for all that CRP 
conservation payments from the Government are not subject to self-
employment social security taxes--a rate of up to 15 percent of the 
payment amount. Currently, there is confusion over how CRP payments 
should be taxed owing to a recent court case in the 6th Circuit Court 
of Appeals. This case overturned a 1998 Tax Court ruling that CRP 
payments are not subject to Social Security taxes because they are a 
rental payment the Government makes in exchange for farmers taking 
environmentally sensitive land out of production. Since other rental 
payments are exempt from this additional tax, CRP payments were 
considered exempt as well.
  As a result of this confusion, there is now a discrepancy between 
active farmers who take part in CRP, which are now subject to the tax 
because it is considered income, and landowners who do not farm but 
take part in CRP and are exempt from the tax. Clearly, this is not what 
Congress intended when it set up this program.
  Furthermore, the new court ruling has inspired the IRS to 
aggressively seek back taxes on CRP payments, as far back as the 1996 
tax year. That could amount to tens of thousands of dollars for farmers 
who are already struggling through economic hard times.
  In my State of Kansas alone, $102.7 million in CRP payments were 
issued in 1999. Are we really going to tell farmers that this money--
promised them for conservation purposes--will now be additionally taxed 
all the way back to 1996? This would amount to a disincentive for 
farmers to participate in environmental and conservation programs 
because they cannot trust that there won't be some hidden penalty down 
the road. Is that the message this body really wants to send?
  This tax makes no sense. Since CRP land is not used for agricultural 
production, it should not be considered farm income--but rather rental/
real estate income as the Tax Court originally ruled. CRP payments are 
different from traditional setaside programs because the program 
requires strict adherence to environmental standards. The farmer is 
contracting with the Government for an environmental benefit. Why on 
Earth would we choose to tax him for it?
  We must also consider the state of the farm economy today. 
Agriculture

[[Page S1337]]

is one of the few industries in this country which has not been blessed 
with a prolonged booming economy. This is the worst possible time to 
burden farmers with additional taxes.
  This bill received enthusiastic support in the last Congress. In 
fact, this measure was approved unanimously in the Senate last year as 
part of a larger tax bill, but, unfortunately, was not able to make its 
way into law. In addition to strong Senate support, this bill has the 
backing of numerous farm groups including: the National Corn Growers, 
National Wheat Growers, American Soybean and Cattlemen's Beef 
Associations--along with the National Farmer's Union and the American 
Farm Bureau.
  My colleagues, one of the privileges we have as Members of the Senate 
is to be able to correct legislative wrongs that hurt our constituents. 
This may be a minor thing in the larger scheme of the tax debate, but 
it is of vital importance to our Nation's farmers. I urge you all to 
join me in this effort.
  If I may summarize, this Conservation Reserve Program Tax Fairness 
Act of 2001 is to remove taxation on CRP and put it back to where it 
was when the program was first put forward. That program pays farmers 
to idle land to be able to build it up, conserve it, to be able to 
build wildlife up on these tracts of land. It has been very successful.
  What has taken place or occurred is that the IRS has taken farmers to 
court and said they should be taxed for self-employment income for CRP 
payments, which was never the intent of Congress when it passed that. 
That was not to take place. Yet the lower court in that one circuit 
ruled that that is, indeed, correct and that they should be taxed a 
self-employment tax on that income.
  Today Senators Dorgan, Roberts, and myself held a press conference 
introducing this bill to clarify this issue and to remove the self-
employment tax on CRP payments. I think this is a key provision. I hope 
we are able to move forward on it.
  Senator Grassley, chairman of the Finance Committee, is supporting us 
in this effort, and he put it in an overall farm tax relief package. At 
this time, when we have so much difficulty in the farming economy, it 
is important to clarify that we are not going to tax people in a 
situation that they should not be taxed in and where it was never 
intended for them to be taxed.
  This bill previously passed the Senate last year. It has strong 
bipartisan support. The list of original cosponsors is as follows: 
Senators Daschle, Lugar, Levin, Roberts, Burns, Jeffords, Baucus, 
DeWine, Harkin, Craig, Johnson, Leahy, and Bingaman. I hope more will 
join us as well. I hope this not only clears the Senate this year, but 
gets through to the President.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 315

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Conservation Reserve Program 
     Tax Fairness Act of 2001''.

     SEC. 2. TREATMENT OF CONSERVATION RESERVE PROGRAM PAYMENTS AS 
                   RENTALS FROM REAL ESTATE.

       (a) In General.--Section 1402(a)(1) of the Internal Revenue 
     Code of 1986 (defining net earnings from self-employment) is 
     amended by inserting ``and including payments under section 
     1233(2) of the Food Security Act of 1985 (16 U.S.C. 
     3833(2))'' after ``crop shares''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to payments made before, on, or after the date of 
     the enactment of this Act.

  Mr. DORGAN. Mr. President, I am pleased to join Senator Brownback and 
a number of our colleagues today in introducing the Conservation 
Reserve Program Tax Fairness Act of 2001. This much-needed legislation 
would clarify that Conservation Reserve Program payments received by 
farmers are treated for tax purposes as rental payments from real 
estate not subject to self-employment taxes.
  For over a decade, many farmers have agreed to take out of farm 
production environmentally-sensitive lands and place them in the 
Conservation Reserve Program (CRP) for an extended period. In return, 
these farmers receive an annual rental payment from the Commodity 
Credit Corporation of the U.S. Department of Agriculture.
  Over the past several years, the IRS has waged an aggressive campaign 
to try to re-characterize CRP rental payments as net earnings from 
self-employment and subject to self-employment taxes. I believe that 
the IRS's position here is dead-wrong.
  North Dakota has about 3.3 million acres with $109 million in rental 
payments in the CRP program. The IRS's position means that farmers in 
North Dakota could be mailed a tax bill from the IRS for more than $16 
million in added federal taxes this year alone. A typical North Dakota 
farmer with 160 acres in CRP would have a CRP payment of $5,280 and 
would owe nearly $800 in self-employment taxes because of the IRS's 
ill-advised position. To make matters worse, if the IRS pursues back 
taxes on returns filed by farmers in past years, the amount of taxes 
owed by individual farmers could amount to thousands of dollars.
  I believe that it is absolutely ludicrous for the IRS to load up 
farmers with an added tax burden at the very time that our nation's 
family farmers are struggling with high fuel costs and record high 
fertilizer prices while commodity prices are at record low levels. 
Given these circumstances, where are the nation's family farmers 
supposed to come up with the $231 million in additional taxes the IRS's 
interpretation of CRP rental payments imposes on them?
  In our judgment, the Congress never intended this tax result. In 
fact, the U.S. Tax Court understood this very point, when it ruled in 
1998 that the IRS's interpretation of CRP payments was improper and 
that CRP payments are properly treated by farmers as rental payments 
and, thus, not subject to self-employment taxes. Regrettably, the U.S. 
Tax Court's ruling was later reversed by a federal appellate court as 
the IRS continues to litigate the matter.
  We think that most of our colleagues understand that the current IRS 
position is not what Congress intended, nor is it supportable in law in 
our judgment. That's probably why, for example, the Senate unanimously 
agreed to an amendment I offered to the marriage penalty reduction bill 
last summer that included language to clarify the proper tax treatment 
of CRP payments as rentals not subject to self-employment taxes. 
However, my amendment with its CRP language and other amendments were 
stripped from the final version of that bill and this critical CRP 
change was not included in any other tax bills signed into law by the 
President in the last Congress.
  With the legislation we introduce today, Congress can tell the IRS 
that its mistaken effort to treat CRP payments as net earnings from 
self-employment will not be allowed to stand. I, along with the other 
cosponsors, urge you to support this change by cosponsoring our bill 
and working with us to get it added to any major tax legislation passed 
by Congress this year.
  Mr. BURNS. Mr. President, I rise today to join Senator Brownback and 
others to introduce the CRP, Conservation Reserve Program Tax Fairness 
Act. This bill will clarify Congressional intent that the CRP was not 
intended to be subject to self employment social security taxes.
  In a 1999 decision, the 6th Circuit Court of Appeals concluded that 
CRP payments could no longer be treated as real estate rental income a 
status that would make those payments exempt from social security 
taxes.
  The CRP provides financial incentives for improving and preserving 
environmentally sensitive land--taking it out of production and 
enhancing its environmental benefit. The CRP program increases water 
quality, wildlife habitat and prevents soil erosion--all factors which 
have become even more important in light of recent concerns about 
nonpoint source pollution in our nation's waterways.
  This case overturned a 1998 Tax Court ruling that CRP payments are 
not subject to social security taxes because they are a rental payment 
the government makes in exchange for farmers taking environmentally 
sensitive land out of production. Since other rental payments are 
exempt from this additional tax, CRP payments were considered exempt as 
well.

[[Page S1338]]

  As a result of this confusion, there is now a discrepancy between 
active farmers who take part in CRP--which are now subject to the tax 
because it is considered income--and landowners who do not farm but 
take part in CRP and are exempt from the tax. Clearly, this is not what 
Congress intended when it set up this program.
  This bill will allow farmers and ranchers the ability to rest assured 
once and for all that conservation payments made by the government will 
not be subject to the high tax rate imposed by social security self-
employment--a rate of 15 percent of the payment--in future years. As a 
result, working farmers will enjoy the same status as non-farm 
landowners in this program which encourages conservation of land, water 
and wildlife.
                                 ______