With the 2008 farm act, substantial changes were made to the USDA Conservation Reserve Program (CRP).  The major change was reducing the maximum enrollment acreage from about 37 million acres to 32 million acres which is about a 14% reduction in maximum acres.  Also, during this period, a substantial increase in commodity prices took place which has caused the CRP rent prices to increase dramatically in some areas.

The June 2010 issue of Amber Waves has a very good article on the challenges facing the CRP program.  A brief history shows that the CRP program began in 1985 and 1986 and the primary goal was to retire highly erodible farm land from production for a 10 to 15 year term.  Enrollment grew quickly, reaching about 33 million acres by 1990.  After the initial contracts were issued, program goals were modified to include water quality and wildlife habitat improvements in addition to reduced soil erosion.  To capture these multiple benefits, starting in 1990, program administrators used an Environmental Benefits Index (EBI) to rank competing offers received during periodic “general signups”.  The EBI computes a score using a formula that weighs such factors as soil erodibility, location within a priority zone, the proposed conservation practice and the requested rental rate – with offers only being accepted if an EBI score exceeds a cutoff value.

1n 1996, a continuous CPR was added to enroll parcels of land with high enviromental benefits outside of the EBI ranking process.

Between 1990 and 2008, CRP enrollment fluctuated around 33 million acres, with a high of 36.8 million in 2007.  As of February 2010, the total acres in CRP are about 31.2 million acres.  This includes about 4.5 million acres of continuous signup acres.

With the new farm bill coming up in the near future, it will be interesting to see what changes will be made to the CRP program.

For many years the IRS battled with taxpayers regarding whether Conservation Reserve Program (CRP) payments received by retired taxpayers were subject to self-employment taxes.  The taxpayers argued that once a farmer is retired, the payments are simply rent payments and not subject to these taxes.

The IRS countered that the payments are still subject to SE tax in many cases.  This argument went on for many years with various court cases deciding the issue one way or the other.

Congress finally decided to stop part of the argument by passing a law a couple of years ago that stated if a farmer is collecting social security payments, then all CRP payments are exempt from self-employment tax.  This is true even if the farmer is still actively farming.  This law is in effect for any payments received after December 31, 2007.

When you prepare your form SE to show your income subject to self-employment taxes, you will back out these payments in arriving at your net SE earnings.

The argument is still alive regarding receiving CRP after a farmer retires and before they start collecting social security benefits.

If this situation applies to you, make sure to discuss it with your tax advisor.