[Congressional Record Volume 153, Number 62 (Wednesday, April 18, 2007)]
[Senate]
[Page S4694]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DORGAN (for himself, Mr. Brownback, Ms. Landrieu, Mr. 
        Allard, Mr. Harkin, Mrs. Murray, Mr. Roberts, Mr. Nelson of 
        Nebraska, Mr. Salazar, Mr. Hagel, Mr. Thune, and Mr. Levin):
  S. 1155. A bill to treat payments under the Conservation Reserve 
Program as rentals from real estate; to the Committee on Finance.
  Mr. DORGAN. Mr. President, today I am joined by Senator Brownback and 
ten of our colleagues in introducing the Conservation Reserve Program 
Tax Fairness Act of 2007. This legislation clarifies once and for all 
that Conservation Reserve Program (CRP) payments received by active or 
retired farmers, or other landowners for that matter will be treated 
for Federal tax purposes as rental payments that are not subject to 
self-employment taxes.
  Let me take a moment to describe this problem. For many years now, 
the Internal Revenue Service (IRS) has been taking the erroneous 
position that CRP payments received by farmers are self-employment 
income derived from a trade or business and therefore are subject to 
Self-Employment Contributions Act (SECA) taxes. Regrettably, the IRS 
and the Treasury Department proposed a new ruling late last year that 
not only requires active farmers to pay SECA taxes on CRP payments but 
expands similar tax treatment to CRP payments received by retired 
farmers and other landowners.
  This latest ruling proposed by the IRS would impose a significant 
financial hardship on family farmers and others 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.
  Today, North Dakota has some 3.4 million acres with about $112 
million in rental payments in the CRP program. Left intact, the IRS's 
ruling would mean that farmers in North Dakota may owe an additional 
$16 million in Federal taxes this coming year. A typical North Dakota 
farmer with 160 acres of CRP would owe nearly $750 in new self-
employment taxes because of the agency's ill-advised position.
  If the IRS decides to pursue back taxes on returns filed by farmers 
in past years, the amount of taxes owed by individual farmers for CRP 
payments could amount to thousands of dollars. That would be 
devastating to many farmers and others who depend on CRP rental 
payments to make ends meet. As a result, the proposed change in our 
bill applies to CRP payments made in open tax years before, on, or 
after the date of its enactment.
  We believe the IRS's position on the tax treatment of CRP payments is 
dead wrong. In our judgment, forcing CRP recipients to pay self-
employment taxes on CRP payments is not what Congress intended, nor is 
it supportable in law. The U.S. Tax Court, the Federal court with the 
most expertise on tax issues, shares our view that the IRS position is 
improper. In fact, the U.S. Tax Court ruled in the late 1990's 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.
  In February, IRS Commissioner Mark Everson sent a letter to me and a 
number of our colleagues who are concerned about this issue. In his 
letter, Commissioner Everson made clear that the IRS would not change 
its position that CRP payments are subject to self-employment tax as 
income derived from a trade or business--absent new statutory language 
passed by the Congress and enacted into law.
  With the legislation we are introducing today, Congress will send a 
clear message to the IRS that its misguided effort to subject CRP 
payments to self-employment taxes is inappropriate and will not be 
allowed to stand. Our bill also makes sure that Federal trust funds 
that would have received SECA revenues but for the enactment of our 
bill are held harmless through the use of revenue transfers from the 
Treasury general fund.
  Senator Brownback and I ask our colleagues to support this much-
needed tax relief for family farmers and other CRP recipients by 
cosponsoring the Conservation Reserve Program Tax Fairness Act. And we 
hope you will work with us to get this legislation enacted into law 
without delay.
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