Rev. Proc. 55-4

SECTION 1. PURPOSE.

The purpose of this Revenue Procedure is to provide instructions for the adaptation and use of existing 1954 tax forms by taxpayers reporting self-employment income for fiscal years ending in 1955.

SEC. 2. SELF-EMPLOYMENT COVERAGE EXTENDED.

Under the provisions of the Social Security Amendments of 1954, 68 Stat. 1052, C.B. 1954-2, 603, for taxable years ending after December 31, 1954, the $3,600 limitation on self-employment income is increased to $4,200. No proration for taxable years beginning in 1954 and ending in 1955 is required. In addition, the self-employment coverage is extended to certain occupational groups not previously covered, including farm operators. These changes are in the form of amendments to section 1402 of the Internal Revenue Code of 1954.

SEC. 3. SPECIAL REPORTING PROCEDURE.

One of these amendments provides for a special reporting procedure for self-employed farm operators on the cash basis. If his gross income from farming is not more than $1,800, he has the option of reporting for self-employment tax purposes either the actual self-employment net earnings or 50 percent of his gross income from farming. If his gross income from farming is more than $1,800 and his actual self-employment net earnings are less than $900, he has the option of reporting for self-employment tax purposes either the actual self-employment net earnings or $900. This amendment appears at the end of section 1402(a) of the Code. Of course, if the net earnings which he intends to report for self-employment tax purposes are less than $400, they are not to be so reported in view of the limitations under section 1402(b) of the Code.

SEC. 4. USE OF EXISTING FORMS.

New tax forms for use by 1955 fiscal year taxpayers (years beginning in 1954 and ending in 1955) who are subject to self-employment tax will not be designed and printed. Therefore, existing 1954 tax forms must be adapted to fit the needs of such persons. Schedule C, Profit (or Loss) From Business or Profession, of Form 1040, U.S. Individual Income Tax Return, should be changed, in the case of all self-employed taxpayers filing a 1955 fiscal year return. The instructions on the reverse side of Schedule C should also be changed. Such changes should be as follows:

Page 3, line 32, change `$3,600' to `$4,200.'

Page 3, line 33, change the parenthetical clause to read `If such wages exceed $4,200, enter $4,200.'

SEC. 5. REQUIREMENT OF SCHEDULES.

Section 39.22(a)-7(e) of Regulations 118 (applicable under the 1954 Code by virtue of T.D. 6091, C.B. 1954-2, 47) requires each farmer who keeps no records or who keeps only records of cash receipts and disbursements to fill in and attach Form 1040F, Schedule of Farm Income and Expenses, to his Form 1040. However, farmers on the accrual basis may use either Form 1040F or Schedule C. Form 1040F for 1954 does not provide for the computation of the self-employment tax for farmers on a fiscal year basis and, accordingly, does not have a Schedule C-a, U.S. Report of Self-Employment Income, which is detached by personnel of the Internal Revenue Service and forwarded to the Social Security Administration for their wage records. Therefore, farmers filing Form 1040F with their 1955 fiscal year returns must also complete and file the Computation of Self-Employment Tax, page 3 of Schedule C.

SEC. 6. EXPLANATION OF DIFFERENT AMOUNTS.

The amount of net earnings from farming or the amount determined under the optional method in the case of the farmer reporting on the cash receipts and disbursements basis, as discussed above, which is taken into account in determining the liability for the self-employment tax, should be entered on line 25 of page 3 of Schedule C, Form 1040. Where the amount of net profit from the farming operations so reported on line 25 differs from the net farm profit shown either on line 24 of Schedule C, Form 1040, or line 10 of page one of Form 1040F, the difference should be explained in a statement attached to the return. Such situation is likely to arise in the case where (1) the gross income from farming operations is not more than $1,800, and the taxpayer elects to report 50 percent of his gross farm income as his self-employment net earnings under the first option explained above; (2) the gross income from farming operations is more than $1,800, net farm earnings are less than $900, and the taxpayer elects under the second option discussed above to report $900 as his self-employment net earnings; (3) the taxpayer's computation of gross income from farming operations includes items which are to be excluded from his computation of self-employment net earnings, such as capital gains or losses, certain gains or losses from property other than capital assets, etc.; or (4) other adjustments were made which resulted in a greater or lesser net farm profit than the amount reported as his net earnings from self-employment from farming operations. Whatever the difference, it should be explained in a separate statement attached to the return.

SEC. 7. SHORT PERIODS.

The foregoing provisions are also applicable to self-employed taxpayers filing returns, Form 1040, and supporting schedules, for short periods ending in 1955.

SEC. 8. PERIOD TO WHICH APPLICABLE.

The provisions of this Revenue Procedure are applicable only for taxable periods ending in 1955.

SEC. 9. INQUIRIES.

Inquiries relating to this Revenue Procedure should be addressed to the Assistant Commissioner (Operations), for the attention of O:A:PPr.