A client who is retired inquired about whether CRP payments (the government’s Conservation Reserve Program) can be considered income and used for IRA contributions?
See Pub 225, “Cost-Sharing Exclusion (Improvements)”, page 12, to determine if it is even taxable income on Schedule F. No taxable income, no self-employment income.
By long standing IRS rules and a recent Appeals Cout ruling overturning a Tax Court ruling to the contrary. If the land owner is a non-farmer, CRP payments can not be filed on Schedule F. No Schedule F income, no self-employment income.
See Schedule SE Instructions, “Income and Losses Not Included in Net Earnings From Self-Employment”, page SE-5.
6. “Payments you receive from the Conservation Reserve Program if you are receiving social security benefits for retirement or disability. Deduct these payments on line 1b of Schedule SE.
No net earnings from self-employment, no self-employment income.
See Pub 590-A for; “What Is Compensation?.” No W-2 or self-employment income, no IRA compensation.
Bottom Line: This is only consider IRA Compensation eleigible to make IRA conbtributions if none of the following are true.
To the degree any CRP payments recevie a cost sharing exclusion.
The landowner is a non-farmer.
The individual is receving SSOA/SSDI benefits.
Permalink Submitted by Alan - IRA critic on Thu, 2021-01-21 19:51
If client is no longer farming the land or filing Sch F etc, this income is tantamount to rental income. It is also not subject to SE tax, so it would not be earned income eligible to fund an IRA contribution.