MN is in the 8th Circuit.

The 8th ruled that a person who owned farm land, and rented it to his C corp, in which he was a materially active participant,

(ie fulfilled the requirements of section 1402 so that rent income paid to him by his C corp.... under the law..... would be subject to self employment tax)......

......was able to convince the 8th Circuit Court that he should not be assessed the self employment tax because the rent paid to him was in fact pure rent, and as such, was not subject to the se tax.

IRS has said it will NOT follow that decision.....

....which means the IRS will assess the self employment tax, and if the taxpayer does not like it, ie does not pay it, will take a stance so that the THREAT of litigation hangs on top of a taxpayer when he rents farm land to his corp, or to any other entity in which the taxpayer is a "material participant in the production process".......... so, pay the bill, or go to court.

That means that if a taxpayer's facts and circumstances are exactly parallel to that 8th circuit case, and the dispute is in the 8th circuit, if that taxpayer takes his IRS assessment to court to dispute it, he will MOST LIKELY win.

However......there is no guarantee.  The court does not have to rule the same way---- they can always determine that the circumstances were not the same.

And........ the costs of litigation will most likely fall on the taxpayer......attorney's fees, deposition fees, witness fees, loss of time, etc etc etc.

So..........if the rent amount is significant......to the extent that if one is "caught" not paying the SE tax when the law requires it........and it really hurts to pay the interest and penalties........then my stance is why fight it, pay for an extra tax return each year, and don't worry about it.

It is a choice item.

Just remember that the penalties will include the "accuracy related" penalty......since the taxpayer will have no excuses for not knowing the law.