FS-2024-05, Feb. 2024 This fact sheet issues FAQs about USDA’s Discrimination Financial Assistance Program. Section 22007 of the Inflation Reduction Act of 2022 (IRA) provides financial assistance for farmers, ranchers, and forest landowners who experienced discrimination by the United States Department of Agriculture (USDA) in USDA farm lending prior to 2021. To implement Section 22007 of the IRA, USDA created the USDA Discrimination Financial Assistance Program (Program). To be eligible to participate in the Program, an individual must have experienced discrimination by USDA in USDA farm lending or be a debtor with assigned or assumed USDA farm lending debt that was the subject of USDA discrimination. The Program covers discrimination based on race, color, or national origin/ethnicity (including status as a member of an Indian Tribe); sex, sexual orientation, or gender identity; religion; age; marital status; disability; or reprisal/retaliation for prior civil rights activity. More information about the Program may be found in the Discrimination Financial Assistance Program. Q1. I received a payment of financial assistance through the Program. Is the payment includible in my gross income for federal income tax purposes? (added Feb. 23, 2024) A1. Yes. The payment is includible in gross income under section 61 of the Internal Revenue Code. Q2. I hired an attorney to assist me in applying for financial assistance through the Program. May I deduct the fees paid to my attorney? (added Feb. 23, 2024) A2. Yes. Fees paid to an attorney in connection with any action involving a claim of unlawful discrimination may be deducted “above-the-line,” but the deduction is limited to the amount of any payment you received from the Program. You can claim this deduction as an adjustment to income on Schedule 1 (Form 1040), line 24h. Q3. I received a payment of financial assistance through the Program. Is the payment subject to self-employment tax? (added Feb. 23, 2024) A3. It depends on your particular facts and circumstances. Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves so they may receive Social Security and Medicare benefits later. It is similar to Social Security and Medicare taxes withheld from the pay of most wage earners. Self-employment tax is imposed on your net earnings from self-employment, which generally means the gross income derived from carrying on a trade or business, less certain deductions attributable to the trade or business. For self-employment tax purposes, generally there must be a connection (nexus) between the gross income (here, that is the financial assistance payment you received) and a trade or business that is, or was, carried on. A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. The facts and circumstances of each case determine whether an activity is a trade or business. You do not need to make a profit to be in a trade or business as long as you have a profit motive, but you do need to make ongoing efforts to further the interests of your business. Generally, the required nexus exists if it is clear you received the financial assistance payment because of your individual conduct of a trade or business, including if you received the payment as compensation for lost income of a trade or business. You are usually self-employed if you operate your own farm on land you either own or rent. In general, the IRS does not provide personalized tax advice regarding whether an individual is carrying on a trade or business. For more information, please see Self-employment tax (Social Security and Medicare taxes), the instructions to Schedule F (Form 1040) and Schedule SE (Form 1040), and Publication 225, Farmer’s Tax Guide. You may also choose to consult with a tax professional to determine how the law applies to your particular facts and circumstances. IRS-FAQ
