Saturday, March 04, 2000
Farmers watch tax battle
Court sides with IRS getting share of federal payment
BY JOHN NOLAN
The Associated Press
A western Ohio farm couple who have been receiving federal payments for conserving most of their land instead of farming it lost a round in a tax fight Friday.
Those payments are taxable farm income, not non-taxable rent revenue, the 6th U.S. Circuit Court of Appeals ruled.
State farm bureaus in Ohio, Texas, New York, Iowa, Kansas and other states have been supporting Frederick and Ruth Wuebker of Fort Recovery in their battle with the Internal Revenue Service because the dispute could affect many other farmers.
“They saw the need for it, because obviously, it's going to cost a lot of people money at a time when farmers are being pressed a lot of other ways,” said Nan Still, an Ohio Farm Bureau Federation lawyer who argued in support of the Wuebkers.
The couple's lawyers did not return calls to comment on the ruling. Ms. Still said lawyers will talk with the couple about whether to file another appeal. Friday's ruling overturns a 1998 U.S. Tax Court decision in favor of the couple.
The Wuebkers worked their 259-
acre farm for 20 years before concerns about soil erosion led them to agree in 1991 to place 215 acres into the Conservation Reserve Program of the U.S. Department of Agriculture.
The USDA pays farmers who work to conserve the soil and water for 10 to 15 years, instead of farming the land. The USDA has the right to periodically inspect the land and records of its care to track the conservation efforts and ensure compliance with program rules.
In 1992 and 1993, the USDA program paid the Wuebkers $18,190 and $18,267, respectively. They reported the money as rent payments and did not include it among their self-employment income. But the IRS concluded that the payments are income and said the Wuebkers owe additional taxes of $1,685 for 1992 and $1,640 for 1993.
The Wuebkers said the USDA payments were not self-employment income because they did not derive from the farming business. But appeals Judges Ronald Gilman and R. Guy Cole Jr. agreed with the IRS that the payments are directly related to the Wuebkers' farming business.
Appeals Judge Nathaniel Jones dissented. He said the USDA rules that restrict use of the land and require access for inspections amount to “using” the land that make the payments tantamount to rent.
The USDA pays a total of at least $1.3 billion under the conservation program — an average of $5,000 per farm and $45.15 per acre on more than 400,000 contracts and 270,000 farms. The self-employment tax rate is 15.3 percent.
USDA officials say the conservation program reduces erosion, expands wildlife habitats, improves water and wetland quality and encourages tree planting.
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