Morehouse Appeal is Released – Taxpayer Victory
The Eighth Circuit just released today the long-awaited appeals of the Rollin Morehouse Tax Court case that we have posted on previously. In the original Morehouse decision. the Tax Court found that essentially all CRP payments received, whether by a farmer or simply a landlord would be subject to self-employment tax.
In today’s Eighth Circuit decision, by a 2 to 1 margin, it reverses the Tax Court and finds that CRP income received by a landlord who is not treated as an active farmer is not subject to SE tax. I think the following footnote from the case summarizes it fairly succinctly:
“The dissent seemingly argues that we should conclude that Morehouse was in the trade or business of farming because in order to qualify for CRP payments he had to certify that he was an eligible person actively engaged in farming operations on eligible land. This argument, however, runs directly contrary to the Tax Court’s longstanding position that a determination by the USDA that an individual was actively engaged in farming “is not a determination for Federal income tax purposes that [Morehouse was] actively engaged in a trade or business. Here, the Tax Court summarily (and quite properly) rejected the Commissioner’s novel argument that Morehouse was actually engaged in the trade or business of conducting an environmentally friendly farming operation. The record indicates that Morehouse never personally farmed the CRP Properties and that he tilled and fertilized the land so that he could establish grass covering of which he could make no economic use. We suspect, respectfully, that the Commissioner’s characterization of Morehouse’s activities as even remotely resembling a “farming operation” would be met with a fair modicum of skepticism by anyone who has carried on (or closely observed) such an enterprise.”
Due to this ruling, CRP income received by non-active landlords will be exempt from self-employment tax. If landlord elected to pay SE tax on a 2013 income tax filing as a landlord, an amended tax return may be warranted.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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