A self-employed farmer sold his farm and retired at the end of November 1988. He filed
for and became entitled to benefits in November 1988. During the period of April 1988
through November 1988 he raised, harvested and stored a grain crop. The crop was sold
in 1989 making the net profit from the sale of the grain reportable as NESE for 1989.
If the beneficiary requests the income be excluded, his request can be approved since
the income was received in a taxable year following the year of entitlement and the
income is not attributable to services performed after the initial month of entitlement.
Any activities performed after the month of entitlement solely in connection with
the sale of the stored crop; e.g., arranging the sale of the crop or delivering the
crop to market, are not considered services attributable to the income received.
Note that the income from self-employment which is excluded from 1989 total yearly
earnings is not counted as earnings for 1988 for deductions. Also, the full amount
of NESE subject to SE tax for the year is used for computation purposes.
A self-employed farmer became entitled to benefits in May 1987. He cultivated, harvested
and stored a grain crop in the period July through November 1987. He did not work
after November 1987. In March 1988 he sold the 1987 holdover crop for $30,000.
In this case, if the beneficiary requests the $30,000 be excluded from his gross income,
he will be advised the self-employment income exclusion does not apply because, while
the income was received in a year following the initial year of entitlement, it is
attributable to his services performed after the month of entitlement.
In 1987, a farmer signed a FAPP agreement to limit production of wheat by placing
one-half of the farm's acreage in the Conservation Reserve Program for 10 years on
condition that a cover crop be planted to prevent erosion. Periodic payments were
to be made by check and in the form of agricultural lime. The farmer then became entitled
to Social Security benefits in June 1988 but continued to farm the remaining acreage
full time. The farmer's Annual Report for 1988 listed $15,000 in SEI for that year
and estimated the same amount for 1989. He requested that $10,000 be excluded each
year for ET purposes as FAPP payments. The farmer submitted a copy of a 1988 Form
1099G (statement for recipients of certain Government Payments) from the Dept. of
Agriculture, showing $10,000 in FAPP payments. A copy of schedule F (Form 1040) -
Farm Income and Expenses, for 1988 also, was submitted. It listed $10,000 in item
7a (total agricultural program payments) in Part I; also, $40,000 of gross income
in item 12. In Part II, Farm Deductions, under item 15 (Conservation expenses) it
listed $10,000. Items 20 (Fertilizers and lime) and 22 (Gasoline, fuel, oil), each
Under the instructions in RS 02505.115D.2., the $10,000 in FAPP payments is counted for ET purposes in 1988 (the initial
year of entitlement) but not for 1989, pursuant to the SEI exclusion rule. Also, as
provided in RS 02505.115D.2.b., no development regarding offsetting expenses, such as those listed above, is ordinarily
required, since the only SEI to be excluded is the FAPP payments.
By the time Farmer Jakes attained age 65 in October 1980, he has already raised, harvested,
and stored his grain crop for 1980. He filed for Social Security benefits and became
entitled beginning October 1980. He advised the DO he would not work from October
1980 through April 1981 but would return to work in May 1981. 1980 becomes his initial
grace year. Since he has indicated he will not exceed the exempt amount for 1981,
his benefits continue. When he files his 1981 annual report, he indicates all months
are service months and he has NESE of $10,000. He advises this income was for the
partial sale of his 1980 crop, raised and stored before his initial month of entitlement.
Since the $10,000 can be excluded, for deduction purposes he has no income for 1981.
(His crop for 1981 was raised and stored but not sold.) In each of the years from
1982 through 1984, he again raises and stores crops. To meet his needs each year he
sells off $10,000 in grain from the crop raised and stored in 1980, before his initial
month of entitlement. Therefore, each year he can exclude $10,000 from his gross income
Although he has performed services each year after his month of entitlement, he received
no income attributable to these services. The income he does receive is the result
of his 1980 carryover crop, which was raised, harvested, and stored before his initial
month of entitlement. In January 1986, Farmer Jakes sells all of his stored grain
(raised in 1981-1984) for $240,000. However, since he attained age 70 in October 1985,
the earnings test no longer applies and no deductions will be imposed based on his
earnings in 1986.
If Farmer Jakes had sold his stored grain in 1985, the year he attained age 70, and
requested the $240,000 be excluded from his 1985 income, his request would be denied.
Since all this income is attributable to a source for which significant services were
performed after the month of entitlement, even though the services (other than the
sale of the crop) were not performed in the year in which the income was received,
it may not be excluded from income from self-employment for deduction purposes. His
total earnings for deductions for 1985 are $180,000. This is arrived at by dividing
the $240,000 by 12 and multiplying the result by 9 (the number of months he was under
age 70). Deductions could be imposed for January 1985 through September 1985.