In-Forum, ND
01-25-07
IRS, retired farmers at odds over tax
Jon Knutson, The Forum
When Roy Lindvall retired from farming 20 years ago, he thought he was done
paying self-employment tax.
Now the Internal Revenue Service thinks Lindvall and other retired farmers who
collect Conservation Reserve Program payments should pay self-employment
tax on the income.
“I just can’t understand it. I’m retired,” said Lindvall, a former Mcville, N.D., farmer
who now lives in Grand Forks, N.D.
A lot of other people, including farm state legislators and Neil Harl, dean of U.S.
farm law, can’t understand it, either.
Why should retired farmers – who already pay income tax on their CRP
payments – also pay the 15.3 percent self-employment tax on the money?
“I find it inexplicable,” said Harl, a professor at Iowa State University in Ames.
Self-employment tax is a Social Security and Medicare tax, primarily for
individuals who work for themselves.
It’s similar to the Social Security and Medicare taxes withheld from the pay of
most wage earners, according to the IRS.
It’s unclear how many retired farmers might be affected.
Tax practitioner Allen I. Orwick of LFS Professional Services Inc., in Lakota,
N.D., said he has a number of clients who would be hurt.
A little background:
The federal government pays a per-acre fee to farmers who put land into the
CRP, often under a 10-year contract. Typically, land enrolled in the CRP is
susceptible to erosion or provides good wildlife habitat or both.
North Dakota has about 3.3 million acres in the program, behind only Texas and
Montana.
Legal rulings dating back to 1988 indicated retired farmers don’t need to pay selfemployment tax on CRP payments, Harl said.
But in 2003, the IRS ruled that retired farmers do need to pay the tax.
Farm-state legislators, including Rep. Earl Pomeroy, D-N.D., protested. The
issue sat in limbo for years, in part because the IRS apparently lost a key file.
In December, however, the IRS issued its Notice 2006-108, which supports the
2003 ruling. Notice 2006-108 also says a new decision is coming and that public
comments will be taken.
The IRS will carefully read all the comments it receives, but it believes it’s on
solid ground, said Marie Cashman, an IRS special counsel in Washington, D.C.
Congress could change the law, she said.
Pomeroy said he hopes the IRS will change its interpretation of how CRP
payments should be taxed.
If the IRS doesn’t, he and fellow farm-state legislators will write new legislation
shielding CRP payments to retired farmers from self-employment tax.
“To assess self-employment on CRP income flies in the face of reality and
common sense,” he said.
Readers can reach Forum reporter Jonathan Knutson at (701) 241-5530