We are led to believe that Peyton Farquar's services as a spy are needed more than his actual participation as an officer or soldier in the Confederate army. We do not know if Farquar has served in this capacity before; he may have performed such espionage previously. I have always found the appearance of the Union spy dressed in Confederate garb at Farquar's property interestingly suspicious. Did the Union spy just happen upon Farquar, or was he specifically ordered to seek him out? Could it be that the Union army had previous information concerning Farquar's activities? We know that Farquar desired to serve in the Confederate army:

... he chafed under the inglorious restraint, longing for the release of his energies, the larger life of the soldier, the opportunity for distinction.

He apparently believed that the espionage he hoped to perform would eventually lead to that goal.

That opportunity, he felt, would come, as it comes to all in wartime. Meanwhile he did what he could. No service was too humble for him to perform in the aid of the South, no adventure to perilous for him to undertake...

The reason Peyton Farquhar is not a soldier, officer, or part of the army is not given.  The author says only that "circumstances of an imperious nature which it is unneccessary to relate here, had prevented him from taking service with the gallant army".  Apparently, there are significant reasons that Farquar is not a part of the military, but the reasons themselves are not important enough to be revealed and examined in the story.

What is clear, however, is that Farquhar's sympathies are unquestioningly with the Confederacy in the Civil War.  As a slave owner, he is "an original secessionist and ardently devoted to the Southern cause".  Although he is prohibited by unnamed circumstances from joining up, he longs for "the larger life of the soldier, the opportunity for distinction".  He is "a civilian who (is) at heart a soldier" who will do what he can in whatever capacity to help the Southern cause, and it is because of this zeal that he finds himself in the predicament of imminent execution at the hands of the Union Army at Owl Creek Bridge.