[Congressional Record Volume 149, Number 94 (Tuesday, June 24, 2003)]
[Senate]
[Page S8441]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BROWNBACK (for himself, Mr. Dorgan, Mr. Grassley, Mr. 
        Baucus, Mr. Daschle, Mr. Roberts, Mr. Burns, Mr. Bond, Mr. 
        Allard, Mr. Hagel, Mr. DeWine, Mr. Craig, Mr. Levin, Mr. Leahy, 
        Mr. Conrad, Mr. Harkin, and Mr. Jeffords):
  S. 1316. A bill to treat payments under the Conservation Reserve 
Program as rentals from real estate; to the Committee on Finance.
  Mr. BROWNBACK. Mr. President, I ask unanimous consent that the 
``Conservation Reserve Program Tax Fairness Act of 2003'' be printed in 
the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1316

       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 2003''.

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

       (a) Internal Revenue Code.--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) Social Security Act.--Section 211(a)(1) of the Social 
     Security Act 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''.
       (c) Effective Date.--The amendments 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'm pleased to join Senator Brownback and 
a number of our colleagues today in re-introducing the Conservation 
Reserve Program Tax Fairness Act. This legislation is virtually 
identical to the bill we introduced in the 107th Congress, which 
garnered nearly twenty Senate cosponsors. It clarifies that 
Conservation Reserve Program, CRP, payments received by farmers are 
treated for Federal tax purposes as rental payments from real estate, 
not self-employment income subject to self-employment taxes.
  Despite past strong bipartisan support for this legislation, the 
Congress did not make this long overdue tax law clarification in the 
major tax reduction bill that was recently signed into law. This is 
regrettable and I hope that the Congress will move expeditiously to 
reverse the IRS's wrong-headed position on this matter.
  Let me take a moment to describe this problem. For many years, the 
IRS has been taking the erroneous position that CRP payments received 
by farmers are income from self-employment and therefore are subject to 
self-employment taxes. This position imposes a significant financial 
hardship on family farmers farmers who have voluntarily agreed to take 
environmentally-sensitive lands out of farm production and place them 
in the Conservation Reserve Program in return for an annual rental 
payment from the Commodity Credit Corporation of the U.S. Department of 
Agriculture.
  In our judgment, the IRS's tax treatment of CRP payments is not what 
Congress intended, nor is it supportable in law. The U.S. Tax Court 
shares our view that the IRS position is improper. In fact, the U.S. 
Tax Court ruled in 1998 that CRP payments are properly treated by 
farmers as rental payments and, thus, not subject to self-employment 
taxes. Unfortunately, the IRS challenged the Tax Court decision and the 
Tax Court was later reversed by a federal appellate court.
  Today, North Dakota has some 3.3 million acres with $110 million in 
rental payments in the CRP program. Left unchanged, the IRS's 
interpretation means that farmers in North Dakota will owe an 
additional $16 million in federal taxes this year. 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. If the IRS also decides to pursue back taxes on 
returns filed by farmers in past years, the amount of taxes owed by 
individuals farmers for CRP payments could amount to thousands of 
dollars.
  I believe that it is absolutely wrong for the IRS to load up farmers 
with an added tax burden, especially when most of our Nation's family 
farmers are still struggling from day to day to make ends meet. With 
the legislation we are introducing today, Congress can tell the IRS 
that its effort to treat CRP payments as net earnings from self-
employment is inappropriate and will not be allowed to stand.
  Senator Brownback and I ask our colleagues to support this much-
needed tax relief for family farmers by cosponsoring the Conservation 
Reserve Program Tax Fairness Act. And we hope you will work with us to 
get this legislation enacted into law at the first available 
opportunity.
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