The Latest on Reporting CSP Payments

Abstract

<p>On September 25, 2006, the Internal Revenue Service published Rev. Rul. 2006-46<strong>1 </strong>which states that – “. . . the Conservation Security Program is substantially similar to the type of program described in section 126(a)(1) through (8) of the Code within the meaning of section 126(a)(9). As a result, all or a portion of cost-share payments received under the CSP is eligible for exclusion from gross income to the extent permitted by section 126. The language of the ruling echoed the language appearing in the <em>Federal Register</em><strong>2 </strong>in June of 2005 in which the Secretary of Agriculture stated that “this determination permits recipients to exclude from gross income, for Federal income tax purposes, all or part of the existing practice, new practice, and enhancement activity payments to the extent allowed by the Internal Revenue Service.”<strong>3 </strong>However, as pointed out in articles appearing in the <em>Agricultural</em> <em>Law Digest </em>on November 18, 2005<strong>4 </strong>and December 16, 2006,<strong>5 </strong>the exclusion provision under I.R.C. § 126 is limited to “improvements.”<strong>6 </strong>The language in the latest ruling, as with the language in the <em>Federal Register </em>announcement<strong>7 </strong>may lead CSP participants to believe that more of the CSP cost-share payments are excludible than is justified under I.R.C. § 126.<strong>8</strong></p>