1099-G AGRICULTURE DEPT TRP SEAFOOD INCOME

[kirkavery]

The taxpayer is a self employed lobsterman (Schedule C) and received a Form 1099-G from the US Dept of Agriculture, block 7, Total Agriculture Payments, of $11K.  I can find documentation that the income is taxable but cannot find guidance whether this income is also subject to Self Employment Tax.  

The Proseries input for Form 1099-G does not have a place to input agriculture payments that will link to a Sch C, only links to Sch F and Form 4835, so it appears the income has to be input on Line 1a for Other Gross Receipts along with sales.

Any guidance is appreciated.

[Slats]

I would use Schedule F, which is the best form for Farmers and Fishermen.  While some of the expense item lines will not be applicable, there is Line 32: Other Expenses where you can list anything that doesn't fit lines 10 through 31 by category of expense.  Fishing business refers to the catching, taking or harvesting of finfish, mollusks, crustaceans, marine animal and plant life, except marine mammals and birds. You also have the choice to use Schedule J, Income Averaging and possibly reduce what could be the tax liability for the current year.  Yes, income from fishing is considered self-employment and is subject to self employment tax. Using Sch F will allow you to flow from 1099-G to Schedule F seamlessly and be the correct form to use. 

[kirkavery]

Thanks for the prompt response to my question.   IRS Topic No 416, Farming and Fishing Income, clearly states fishing income is to be reported on Sch C and farming income goes on Sch F.

What I am not clear on is whether the seafood Trade Relief Program income reported on Form 1099-G is subject to self employment tax.  Is there any guidance on that issue?

[Terry53029 · Accepted solution]

No, the Grant is considered as a personal Grant. You do not pay Self-Employment tax on it. 

 enter it on the personal Income section under "Other Income". 

[Slats]

Dear kirkavery,  Interesting q.  My only expierence is with the 1099-G for Farmers known as the CFAP program. "Coronavirus Food Assistance Program" for farmers with livestock who receive relief money to provide nutrition and feed for their livestock. It was computed using number of livestock, weight class and the like. The Seafood Trade Relief Program sounds an awful lot like the CFAP program for Farmers. And in the absence of clear guidance otherwise from IRS, I would use Schedule F for this fisherman.  I know that PUB 595 says Schedule C and you could use Sch C, but you would have to input the 1099-G on the 1099-NEC or 1099-MISC to include the payment there.  I have seen this: https://www.taxnotes.com/irs-e-mail-chief-counsel. (Says that these payments are EXCLUDABLE from income)  I would read the opinion and research to see if there is clarity available. Otherwise, I would include the income initially and then apply for releif if subsequent searches found otherwise. 

[qbteachmt]

I don't see how this is Personal. USDA grants relate to production, and this is not a CARES grant. This is a Trade Relief program. I see this from a Maine Lobster guidance document:

"You will receive a 1099 to claim earned income at the end of the year for funds received"

It's to offset lost revenue due to foreign trade wars and would be regular business revenue.

[Terry53029]

It is not for lost revenue, it to develop new markets. 

As previously stated, the intent of STRP is to provide financial assistance to commercial fishermen for expanding or aiding in the expansion of domestic markets for U.S. commercially caught and sold seafood, because seafood commodities have been impacted by trade actions of foreign governments resulting in the loss of exports. The limited discretionary aspects of STRP (for example, determining AGI and payment limitations) were designed to be consistent with established FSA and CCC programs, but also take into account certain differences associated with seafood production from crop production. These discretionary aspects do not have the potential to impact the human environment as they are administrative. Accordingly, the following Categorical Exclusions in 7 CFR part 799.31 apply:

[kirkavery]

My initial research on the TRP program led me to a message from the commissioner for the Department of Marine Resources.    The commissioner stated the TRP program was to "support the U.S. seafood industry and fisherman impacted by retaliatory tariffs from foreign governments".   This message listed one of the eligible species as lobster.   The message went on to say "Payments will not need to be repaid and there is no cost to apply however the payment will be considered taxable income".

What I was not clear on whether this income was subject to self employment tax.   I see there has been much litigation as to whether other agricultural payments are subject to SE tax.   It appears to me the IRS has been consistent is asserting agricultural payments to farmers who are materially involved in the farm are subject to SE tax on those payments (except if they are receiving retirement or disability benefits from the Social Security Administration).

I was hoping to find some guidance that the TRP payments were not "earned income" in the sense they would be subject to SE tax.  So far it appears there is not clear guidance.

[qbteachmt]

"What I was not clear on whether this income was subject to self employment tax"

That's why I posted the text; it states Earned.

"So far it appears there is not clear guidance."

That's weird; we both referred to Lobster, but you didn't like the text I found?

[kirkavery]

qbteachmt:

The guidance I found from the Dept of Marine Resources was not as clear the TRP is considered earned income as the "Maine Lobster Guidance" document you referred to.   Could you be so kind as to direct me as to how I can locate that document?

Thank you.

[qbteachmt]

"Could you be so kind as to direct me as to how I can locate that document?"

Dang it; I nearly always put in the link. Sorry. Let me see...

Ah, this one: https://lobster207.com/wp-content/uploads/2020/09/STRP-Program.pdf

Also:

Fed register: https://www.federalregister.gov/documents/2020/09/14/2020-20143/notice-of-funds-availability-nofa-se...

This one: https://content.govdelivery.com/accounts/MEDMR/bulletins/2af7f7d

"The application period the USDA Farm Service Agency's Seafood Trade Relief Program has been extended to January 15, 2021.

As indicated in previous notices, the program will provide approximately $530 million to support the U.S. seafood industry and fishermen impacted by retaliatory tariffs from foreign governments.

Payments are based on an individual’s 2019 landings of eligible species, multiplied by the value that has been assigned to each eligible species. Payments will not need to be repaid and there is no cost to apply however the payment will be considered taxable income. There is a payment limitation of $250,000 per person or entity for all seafood combined.

Eligible species include..."

This one: https://mainelobstermen.org/2020/09/09/mla-comments-on-usdf-tariff-relief-for-lobstermen/

[Terry53029]

Of all people qbteachmt, I would think you would know that taxable grants issued on 1099G is taxable income not subject to SE tax. If IRS wanted it to be subject to SE tax they would issue a 1099NEC. See the instructions for the 1099G. Sorry don't have link any longer, as I came across it when looking for info on the grant. 

[kirkavery]

Terry53029

I like your answer better because obviously the client would prefer not to pay SE tax on the Seafood TRP..  I did review the instructions for the 1099-G but didn't see anything that addresses this type of relief payment.

The question I have is why wouldn't the U S Dept of Agriculture have entered the amount in block 6 of the Form 1099-G for taxable grants, rather than block 7 which is for agriculture payments?

Would you agree agriculture payments reported on Form 1099-G to a farmer who is actively involved in farming would be subject to SE tax?   Is there any precedent there?

Don't you think the IRS computer would see a non-match with grants reported on 1099-G to them vs what appears on the tax return?

I can see why it could go either way, hence my dilemma.

If you have support for your recommendation it would be greatly appreciated.

[kirkavery]

Thanks for providing the links, a couple of which are the same ones I found in my research before posting my question.  Most of the information is very detailed on how to get the relief payment, but short on advice how to treat it for tax purposes.  The only guidance I have found, including the sources you referenced, state the payments are "taxable income".  I still don't see where is states "earned income".   If I missing something please enlighten me.

[qbteachmt]

"I still don't see where is states "earned income". If I missing something please enlighten me."

Yes, I did that. Once with only the applicable the text, once with the original link...

This one, which opens a pdf file: https://lobster207.com/wp-content/uploads/2020/09/STRP-Program.pdf

Copied here:

"WHAT INFORMATION WILL YOU NEED

A copy of your license - you must hold a valid state or federal commercial fishing license to catch a species approved by USDA for the STRP and your catch must be sold through a legally permitted or licensed seafood dealer. All attached forms completed according to memo attached. You will receive a 1099 to claim earned income at the end of the year for funds received. Applicants must “self certify” the amount of his/her 2019 commercial lobster landings in pounds."

"taxable grants issued on 1099G is taxable income not subject to SE tax. If IRS wanted it to be subject to SE tax they would issue a 1099NEC."

Governmental entities use the 1099-G, because, for instance, no service was provided (not NEC) to that issuing agency. As for -Misc, of course, it depends on the agency, the grant or program, and which Box it is reported in. That's why it is important to know what this relates to and which Box it is in.

"Certain amounts that are not reportable on Form 1099-G, such as compensation for services, prizes, and certain incentives, may be reportable on Form 1099-MISC, Miscellaneous Information, or Form 1099-NEC, Nonemployee Compensation. See the Instructions for Forms 1099-MISC and 1099-NEC for more information."

Elsewhere on this forum, there is a discussion for 1099-Misc issued for government contractor-employee (nonmilitary) moving reimbursement, for an example of the difference between issuing G and Misc.

I've had this tab open for a year, now:

https://commerce.mt.gov/Montana-Coronavirus-Relief/Awarded-Grants

And the MT DOL site links to the IRS to point out that this will be taxable income for your business. Not personal and not excluded from SE, because these are awarded to businesses for impacts of covid.

I pulled in some of the text from the 1099-G instructions: "Specific Instructions

File Form 1099-G, Certain Government Payments, if, as a unit of a federal, state, or local government, you made payments of unemployment compensation; state or local income tax refunds, credits, or offsets; reemployment trade adjustment assistance (RTAA) payments; taxable grants; or agricultural payments."

The 1099-G instructions include: "State and local grants are ordinarily taxable for federal income purposes. A federal grant is ordinarily taxable unless stated otherwise in the legislation authorizing the grant."

And that takes us to this:

https://www.currentfederaltaxdevelopments.com/blog/2018/12/19/pmta-holds-payments-to-farmers-under-m...

"PMTA Holds Payments to Farmers Under MFP Program to Compensate for Tariff Issues is Taxable Income a...

December 19, 2018 by Ed Zollars, CPA

The IRS has addressed the taxation of payments made to farmers under a trade aid package (the Market Facilitation Program or MFP) in PMTA 2018-021.  The MFP program gives direct payment to producers of certain crops that have been adversely affected by tariffs."

...

"There is currently no legislation excluding these payments from gross income. Thus, under the caselaw and guidance discussed above, the MFP payments are includible in gross income under section 61(a). These payments are also generally includible in net earnings from self-employment and subject to SECA tax."

[Terry53029]

Link to the following quote.

https://www.federalregister.gov/documents/2020/09/14/2020-20143/notice-of-funds-availability-nofa-se...

As previously stated, the intent of STRP is to provide financial assistance to commercial fishermen for expanding or aiding in the expansion of domestic markets for U.S. commercially caught and sold seafood, because seafood commodities have been impacted by trade actions of foreign governments resulting in the loss of exports. The limited discretionary aspects of STRP (for example, determining AGI and payment limitations) were designed to be consistent with established FSA and CCC programs, but also take into account certain differences associated with seafood production from crop production. These discretionary aspects do not have the potential to impact the human environment as they are administrative. Accordingly, the following Categorical Exclusions in 7 CFR part 799.31 apply: