3
In the years in question, petitioner Connie Ray was engaged
in the active trade or business of farming and/or cattle grazing.
In addition to the land that he already owned and used for these
purposes, petitioners purchased an additional 1,022 acres of land
in the years 1987 and 1989. This land, known hereafter as the
CRP land, had been placed under contract by the prior owner with
the Commodity Credit Corp. (CCC) in the Federal Conservation
Reserve Program (CRP) for a 10-year period. Upon acquisition of
this tract, petitioner executed an agreement with the CCC to
continue the contract that existed with respect to these tracts
of land. The CRP contract required petitioner to maintain
vegetative ground cover, to undertake conservation practices to
reduce soil erosion, and to carry on other activities to sustain
the productive capacity of the land. The contract also provided
the following: (1) Petitioners were not permitted to graze,
harvest, and/or use the land for any other commercial reasons;
and (2) the CCC was required to pay petitioners an annual fee per
acre. In 1990, apparently in accordance with the contract with
CCC, petitioner did not farm the property, but he did apply
herbicide and shredded natural grasses to the CRP tract. For
1989, 1991, and 1992, petitioners reported income from CRP (CCC)
on Schedule F of their tax returns as self-employment income.
However, for the year 1990, petitioners reported such income from
CRP as farm rental income not subject to self-employment tax.
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