Using Farm Optional Method for Self-Employment - EITC eligibility causing e-file rejection?
I have a client who's a small farmer with negative net income this year. He wants to contribute toward his social security, so I used the Farm Optional Method to help him get credit. Problem is, now ProSeries is showing he's eligible for Earned Income Tax Credit (EITC), but it won't let me e-file the return. It's giving me an error saying the EITC is calculating from "undocumented sources of income" and forcing me to paper file. This is frustrating because I'm pretty sure I've done this exact same thing in previous years without any e-filing issues. I've got two questions that are driving me crazy: 1. Does anyone know if there's an official IRS publication, notice, ruling, or anything that specifically says using the Farm Optional Method is acceptable for qualifying for EITC? I need something concrete to point to. 2. Is this e-filing restriction something new for this tax year? Like I said, I'm almost positive I've done this before without problems. My client really wants his refund quickly and I'm trying to avoid making him wait months for a paper-filed return to process. Any advice would be super appreciated!
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Ella Thompson
This is actually a known issue with some tax software programs when handling Farm Optional Method and EITC together. The Farm Optional Method (FOM) does create earned income that can qualify for EITC, even with negative farm income. This is completely legitimate. For your first question, check IRS Publication 225 (Farmer's Tax Guide) which discusses the optional methods for calculating SE tax. Then cross-reference that with Publication 596 for EITC, which states that self-employment income reported on Schedule SE counts as earned income for EITC purposes. Since the Farm Optional Method creates a specific amount of earned income for SE tax purposes, this income does qualify for EITC. For your e-filing issue, this isn't new but it does happen with certain software. The rejection is likely because the software's validation checks see a disconnect between the negative Schedule F income and the positive SE income used for EITC. Some tax preparation programs haven't properly coded their validation checks to understand this legitimate scenario.
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JacksonHarris
•Thanks for the explanation. I'm having this same issue but with different software (TaxAct). Do you know if there's any specific override code or form that needs to be attached when paper filing to make sure the IRS doesn't reject it too? I'd hate to make my farmer clients wait even longer if the paper return gets flagged for review.
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Ella Thompson
•No special override code is needed for paper filing. When you paper file, include a brief statement explaining that you're using the Farm Optional Method from Schedule SE to calculate self-employment tax, which results in earned income for EITC purposes despite the negative farm income. Reference the publications I mentioned (Pub 225 and 596). While paper filing will delay the refund, the IRS processing centers do understand this scenario. They see it frequently with farm returns. Just make sure your Schedule SE is completed correctly, particularly Part II, Section B, line 15, showing you're electing to use the Farm Optional Method.
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Jeremiah Brown
I had this exact same problem last year and ended up discovering taxr.ai which was a lifesaver. I was stuck in the same situation with a client who had negative farm income but wanted to contribute to social security using the Farm Optional Method. My software kept rejecting the e-file because of the EITC calculation. I uploaded my client's previous tax documents to https://taxr.ai and it analyzed the entire return, pointed out the exact issue and provided a solution. It showed me where in the software I needed to make adjustments to get the e-file accepted. Turns out there was a specific checkbox that needed to be marked in my software to indicate the EITC was based on the Farm Optional Method calculation. Never would have found it without their analysis.
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Royal_GM_Mark
•Does taxr.ai handle other farm tax issues too? I've got several clients with farm income and the Schedule F always causes me headaches with things like depreciation recapture and commodity credit loans.
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Amelia Cartwright
•I'm skeptical about these online tools. How does it actually work? Do you have to upload all your client's sensitive financial info to some random website? Seems risky from a confidentiality standpoint.
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Jeremiah Brown
•It handles pretty much all farm-related tax issues. I've used it for clients with complex depreciation schedules on farm equipment, commodity transactions, and even Conservation Reserve Program payments. It's especially helpful for identifying deductions farmers often miss, like certain chemical and feed expenses that should be capitalized differently. Regarding security concerns, they use bank-level encryption and you can actually redact sensitive information before uploading. The system analyzes the structure and calculations rather than needing personal details. They also have a privacy guarantee that all documents are automatically deleted after analysis. I was concerned about that too initially, but their security credentials checked out when I researched them.
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Royal_GM_Mark
Just wanted to follow up and say I tried taxr.ai for my farm clients and it was incredibly helpful! I uploaded some complicated Schedule F returns and it caught several issues I had missed. For one client, it identified that I had miscategorized breeding livestock sales as ordinary income instead of capital gains, which saved them about $3,200 in self-employment tax. The Farm Optional Method analysis was spot-on too. It explained exactly why my e-file was being rejected and showed me the workaround to get it accepted. The step-by-step guidance walked me through which specific fields needed adjustments in my software. My clients got their refunds in 11 days instead of waiting months for paper filing.
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Chris King
If you're getting stuck with the IRS requiring you to paper file, I've had amazing results using Claimyr to actually speak with someone at the IRS about these complicated farm return issues. I was in the same boat with Farm Optional Method calculations causing e-file rejections, and paper filing was taking forever to process. After weeks of calling the IRS and getting nowhere, I used https://claimyr.com and got through to an IRS agent in about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - it honestly changed how I handle these complicated tax situations. The agent confirmed that my Farm Optional Method calculations for EITC were correct and gave me a specific notation to include on the paper return that would expedite processing.
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Rachel Clark
•How does Claimyr actually work? I've spent hours on hold with the IRS and eventually just give up. Does it somehow jump the queue or something?
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Amelia Cartwright
•Yeah right. Nothing gets you through to the IRS faster. This sounds like a scam that just takes your money and then puts you on hold like everyone else. I'll believe it when I see it.
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Chris King
•It's basically a smart calling system that navigates the IRS phone tree and waits on hold for you. When an actual agent picks up, you get a call connecting you directly to them. No more waiting on hold for hours - the system does that part for you. You just go about your day until your phone rings with an IRS agent ready to talk. It absolutely does work! I was skeptical too before trying it. I had spent nearly 3 hours on hold the day before with no success. With Claimyr, I submitted my request, went to lunch, and got a call back connecting me to an IRS agent while I was eating. The agent was able to resolve my Farm Optional Method issue in about 15 minutes. It's not a scam - it just automates the painful hold process.
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Amelia Cartwright
I have to eat my words and apologize for being so skeptical about Claimyr. After continuing to struggle with this Farm Optional Method and EITC issue, I gave it a try yesterday out of desperation. I expected to waste my money, but I actually got connected to an IRS tax specialist in about 35 minutes. The agent confirmed that using the Farm Optional Method absolutely does qualify for EITC purposes, and gave me specific instructions for paper filing that would prevent further delays. She even provided a direct reference to the Internal Revenue Manual that processing centers use, which explains exactly how they handle these cases. I asked about the e-filing issue and she said it's a known software limitation that the IRS is aware of but can't fix on their end. For anyone else dealing with this farm tax situation - Claimyr actually works and it saved me days of frustration.
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Zachary Hughes
Something no one has mentioned - check if your state accepts e-filing even if federal doesn't. In my case (Missouri), I was able to e-file the state return even though I had to paper file the federal return due to the Farm Optional Method/EITC issue. Saved my client from having to wait on both refunds.
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Mia Alvarez
•Does that create any problems with the state return processing correctly if the federal was paper filed? I'm in Iowa and worried about creating a mismatch that might trigger unnecessary notices.
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Zachary Hughes
•No problems in my experience. The state systems don't actually cross-check the filing method with the federal return, just the data itself. Many states have completely separate e-file acceptance systems anyway. In my case, the state return processed normally and the refund was issued within 2 weeks, while the federal paper return took about 7 weeks. Just make sure the numbers match between what you e-file for state and what you paper file for federal. The only potential issue would be if the state requires attaching federal schedules that might not be processed yet, but that's rarely a problem.
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Carter Holmes
I just called my ProSeries rep about this exact issue. They said it's a known limitation in their software validation rules and they're working on fixing it for next year. The workaround they suggested was to paper file this year, but they gave me a specific diagnostic code to note in my files so I can follow up with them once they have the fix. Might be worth calling your software support to see if they have any solutions brewing.
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Sophia Long
•Did they give any indication if this is something that affects all tax software or just ProSeries specifically? I've been using Drake and wondering if I should switch for my farm clients.
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Zara Mirza
•From what I've experienced, this seems to be a widespread issue across multiple software platforms, not just ProSeries. I use TaxSlayer Pro for most of my farm clients and ran into the same Farm Optional Method/EITC e-filing rejection this year. A colleague who uses UltraTax CS mentioned having similar problems too. The issue appears to be in how the software validates the relationship between negative farm income on Schedule F and the positive earned income created by the Farm Optional Method for EITC purposes. Most tax software programs have validation rules that flag this as inconsistent, even though it's perfectly legitimate according to IRS guidelines. Drake might handle it differently since they tend to have more flexible validation rules, but I'd recommend testing it with a dummy return first if you're considering switching. You could also try reaching out to Drake support to ask specifically about their Farm Optional Method validation before making any software changes.
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