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2008 Farm Bill: Wisconsin Focus


2008 Farm Bill: Wisconsin Focus
Title XV, Subtitle C: Tax Provisions
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Key Features

The 2008 Farm Bill made several income and self-employment tax changes that affect
Wisconsin farmers. The changes affect the income taxpayers must report, deductions and credits
they can claim and the information reporting requirements for payments received by farmers.

Optional Self-Employment Tax: Under prior law, farmers were allowed to elect an optional
method of reporting self-employment income for tax years in which their farm income was low
so that they could earn quarters of coverage for purposes of qualifying for social security
benefits. However, under the optional method, the income on which farmers paid self-
employment tax gave them only one quarter of coverage instead of the four quarters of coverage
they could earn if they had sufficient farm income. The farm bill modifies the farm optional
method so that electing taxpayers are treated as receiving enough self-employment income to
earn four quarters of coverage. That increases the self-employment tax liability for the optional
method because the tax is imposed on the higher level of deemed income. The farm bill makes a
similar modification to the nonfarm optional method for paying self-employment taxes. This
provision is effective for taxable years beginning after December 31, 2007.

Exclusion of Conservation Reserve Program Payments to Retired or Disabled Individuals
from Self-Employment Taxes: In Notice 2006-108 (December 18, 2006), IRS holds that all CRP
payments are subject to self-employment taxes regardless of whether or not the taxpayer is
actively farming. The farm bill overrides the holding of Notice 2006-108 for CRP payments to
retired or disabled individuals who are receiving social security benefits by excluding the CRP
payments from self- employment income for purposes of calculating self-employment taxes and
from earned income for purposes of calculating Social Security or disability payments.
Therefore, retired or disabled individuals who are receiving social security benefits will not have
to pay self-employment tax on CRP payments and their social security benefits will not be
reduced as a result of receiving the CRP payments. This provision is effective for payments
made after December 31, 2007.


Donation of Conservation Easements: The farm bill retroactively extends the enhanced
charitable contribution deduction for donations of conservation easements through 2009.
Without the extension, the charitable deduction for contributions of conservation easements
would have been limited to 30% of the taxpayers adjusted gross income (AGI) beginning in
2008. With the extension, a farmers deduction for the contributions are limited to 100% of their
AGI and other taxpayers deductions are limited to 50% of their AGI. The farm bill also extends

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Author/Contact Information: Philip E. Harris, Professor and Extension Farm Law Specialist, Department of
Agricultural and Applied Economics, UW-Madison/Extension. 608-262-9490; peharris@wisc.edu.
the provision that allows the excess donation to be carried over 15 years (rather than 5 years) to
2008 and 2009.

Agricultural Bond Improvements: Agricultural Bonds (Aggie Bonds) are tax-exempt bonds
issued by State and local governments to provide low interest loans for first-time ranchers and
farmers. The farm bill improves Aggie Bonds by:
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increasing the loan limit from $250,000 to $450,000 and indexing it for inflation; and
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eliminating the $125,000 limitation on the value of farmland a person can own and be
qualified for the low interest loan..

Energy Provisions: The farm bill reduces the 51¢ per-gallon incentive for ethanol to 45¢ per
gallon for calendar year 2009 and thereafter. The reduction will be delayed if a threshold of 7.5
billion gallons per year of ethanol produced in or imported into the United States (including
cellulosic ethanol) is not met. The farm bill also includes a new, temporary cellulosic biofuels
production tax credit for up to $1.01 per gallon to help get these fuels to commercial viability.
The credit is available through December 31, 2012. The bill extends the tariff on imported
ethanol for two years (through December 31, 2010).

Agricultural Chemicals Security Tax Credit: The farm bill provides retailers of agricultural
products and chemicals and manufacturers, formulators, or distributors of certain pesticides a
business tax credit for 30% of costs for the protection of such chemicals or pesticides. Such
protection costs include employee security training and background checks, installation of
security equipment, and computer network safeguards.

Information Reporting for Commodity Credit Corporation Transactions: A farmer can repay a
Commodity Credit Corporation (CCC) loan with cash, purchase CCC certificates to repay the
loan, or deliver the pledged collateral as full payment for the loan at maturity. Under prior law, a
farmer who used cash instead of certificates to repay the loan received a Form CCC-1099-G
Information Return showing the market gain realized. For transactions prior to January 1, 2007,
however, if a farmer who used CCC certificates to facilitate repayment of a CCC loan, did not
receive an information return. For transactions after January 1, 2007, IRS Notice 2007-63
provides that the CCC must use Form 1099-G to report market gain associated with the
repayment of a CCC loan whether the taxpayer repays the loan with cash or uses CCC
certificates in repayment of the loan. The farm bill codifies the requirement of IRS Notice 2007-
63. This provision is effective for loans repaid on or after January 1, 2007.

Where can I get more information?

The tax provisions of the 2008 Farm Bill are posted at:
http://future.aae.wisc.edu/publications/farm_bill/2008_Farm_Bill_GPO_Title_XV.pdf

Senate Finance Committee:
Conference Agreement Summary for Title XV





Updated: July 2, 2008