Statements On Introduced Bills And Joint Resolutions

Floor Speech

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - April 18, 2007)

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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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