Background

• Morehouse inherited 503 acres in Grant County, 320 in Roberts, and 400 in Day County, SD; land was largely tillable cropland with some CRP placement by his father; he never farmed the land but rented portions to others.
• In 1997, Morehouse enrolled the Grant and Roberts CRP lands in the CRP, with CCC contracts prohibiting farming and requiring conservation plans.
• CRP contracts required conservation measures, periodic weed/pest control, annual paperwork, and property visits by Morehouse; CCC paid part of the costs plus annual rental payments.
• Morehouse received CRP payments of $37,872 in 2006 and $37,872 in 2007 and reported them as self-employment income? no—he treated them as rents on Schedule E.
• On his 2006–2007 returns, he and his wife listed occupations as self-employed and reported CRP payments as rents rather than self-employment income.
• IRS issued notices of deficiency in 2010 asserting CRP payments should have been reported on Schedule F as self-employment income; Tax Court sustained this determination, concluding CRP payments were net earnings from self-employment, not rentals from real estate; on appeal, the majority reversed and held CRP payments to non-farmers constitute rentals from real estate, excluding them from self-employment tax.

Issues

Key Cases Cited

• Bot v. Comm’r, 353 F.3d 595 (8th Cir. 2003) (self‑employment tax provisions broadly construed; nexus required between income and trade or business)
• Wuebker v. Commissioner, 205 F.3d 897 (6th Cir. 2000) (CRP payments to farmers/non-farmers; rentals from real estate)
• Rev. Rul. 60-32, 1960-1 C.B. 23 (—) (soil bank payments to non-farmers not included in SE income; to farmers treated as SE income)
• Rev. Rul. 65-149, 1965-1 C.B. 434 (—) (soil bank payments to non-farmers not SE income)
• IRS Notice 2006-108, 2006-2 C.B. 1118 (—) (proposed revenue ruling expanding Wuebker; not formally adopted)