Rev. Rul. 56-357

Advice has been requested as to the inclusion of amounts received for crop shares, as rents, by a landowner in computing the retirement income credit under section 37 of the Internal Revenue Code of 1954, especially whether the reasoning in Revenue Ruling 55-538, C.B. 1955-2, 313, which considered the question as it related to the Self-Employment Contributions Act of 1954, may be followed, in similar situations, for the purposes of section 37 of the Code.

In the case cited in Revenue Ruling 55-538, supra , the landowner was considered to have received rentals from real estate and, as such, his crops-shares were excluded from net earnings from self-employment under section 1402(a)(1) of the Self-Employment Contributions Act of 1954.

Section 37(c) of the Internal Revenue Code of 1954 provides that for the purpose of section 37(a) of the Code the term `retirement income,' in the case of an individual who has attained the age of 65 before the close of the taxable year, means income from pensions and annuities, rents, and dividends to the extent included in gross income, but only to the extent such income does not represent compensation for personal service rendered during the taxable year.

For self-employment tax purposes, Revenue Ruling 55-538 supra , states in part as follows:

It is the position of the Service that an individual who enters into a cropsharing agreement with another person is an independent contractor and not an employee if (1) he undertakes to produce a crop or livestock on land owned or leased by such other person ; (2) the crop or livestock produced, or the proceeds thereof, are to be divided between the individual and such other person; and (3) the amount of such individual's share depends on the amount of the crop or livestock produced. In connection with the treatment of the respective shares of the landowner and the share-farmer received by the share-farmer is the position of the Service (1) that the share received by the share-farmer is includible in determining his `net earnings from self-employment'; and (2) that the share received by the landowner constitutes rentals from real estate and, as such, is excluded from net earnings from self-employment under section 1402(a)(1) of the Self-Employment Contributions Act of 1954, as amended.

In crop share arrangements such as designated above, it is the position of the Service that the shares received as rent by the landowner, when reduced to money or its equivalent will constitute retirement income for the purpose of computing the retirement income credit, under the provisions of section 37 of the Code, for individuals who have attained the age of 65 before the close of the taxable year.