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Respondent argues that petitioner was actively engaged in
farming and that the CRP payments had a direct nexus with that
operation. Respondent contends that the CRP program was
inextricably intertwined with petitioner's trade or business of
farming.
Section 1.1402(a)-4(d), Income Tax Regs., provides:
Except in the case of a real-estate dealer, where an
individual or a partnership is engaged in a trade or
business the income of which is classifiable in part as
rentals from real estate, only that portion of such income
which is not classifiable as rentals from real estate, and
the expenses attributable to such portion, are included in
determining net earnings from self-employment.
Thus, because we have determined that the payments qualify as
rentals from real estate under section 1402(a)(1), even if such
payments were derived from petitioner's farming operations, the
payments would not be includable in petitioner's earnings from
self-employment.
Respondent argues that this case is indistinguishable from
Ray v. Commissioner, T.C. Memo. 1996-436. In Ray, the taxpayer,
who owned land he used for farming and/or cattle grazing,
purchased an additional tract of land which had been enrolled in
the CRP program by the prior owner. The taxpayer executed an
agreement to continue the CRP contract. The taxpayer did not
8(...continued)
income support for farmers". H. Rept. 99-271(I) at 81 (1985),
1985 U.S.C.C.A.N. 1185. We do not think that these concurrent
goals change the primary character of the payments received.
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