The Conservation Reserve Program (CRP) of the USDA pays landowners not to develop their land. Under the program, landowners enter into contracts with the USDA where they agree to adhere to restrictions on their land in exchange for payments. That is, landowners encumber their property with conservation easements held by the USDA.Landowners are generally required to comply with a conservation plan and periodically monitor their own property and confirm compliance. In exchange, the USDA usually covers the cost of creating any restoration projects (e.g., plantings) and pays an annual rent.
This program recently reached the courts becuase one landowner in Minnesota claimed the rents as well rent on his taxes, and the IRS argued it was income. The IRS suggested that the activities Morehouse was required to engage in resembled farming activities and therefore the payments should be treated as you would farming income.
The Eighth Cirucit disagreed holding that the USDA was essentially paying for teh use of the land. Payments to farmers to use certain techniques might be income, but payments to non-farmers are a horse of a different color and qualify as rent. The court cited revenue rulings and called categorization of payments to nonfarmers as rent a "longstanding rule"
Now, I am not a tax scholar but it is an issue hard to avoid for those of us interested in land use. Was the USDA paying Morehouse rent? It purchased temproary property rights, controlled use of the land, and gave him annual payments for it. The USDA however never actually occupied the land. Conservation easmeents are nonpossessory rights. Can you pay rent without occupying the land?