USDA Enforcement of AGI Requirement
Statutory AGI Requirement
The 2008 Farm Bill provides average adjusted gross income (AGI) limitations applicable to commodity and conservation program payments.
Two limitations are applicable to commodity programs:
-- $500,000 average adjusted gross nonfarm income limitation
-- $750,000 average adjusted gross farm income limitation.
One limitation is applicable to conservation programs:
-- $1 million average adjusted gross nonfarm limitation
Statutory Enforcement Requirement
Section 1604 amends 1001D and provides in section (d)
· At least once every 3 years a person or legal entity shall provide to the Secretary:
-- a certification by a certified public accountant or another third party that is acceptable to the Secretary that the adjusted gross income does not exceed the applicable limitation; or
-- information and documentation regarding the average adjusted gross income… through other procedures established by the Secretary.
· The Secretary is also required to establish statistically valid procedures to conduct targeted audits of such persons or legal entities as the Secretary determines are most likely to exceed the limitations.
· In order to assist in verifying whether the average AGI limitations have been exceeded, USDA has been exploring a process by which IRS would assist FSA in verifying whether an individual's average AGI potentially exceeds the AGI limitations.
· USDA is currently working with the IRS to develop a procedure that would safeguard any information obtained from IRS.
· USDA plans on providing the IRS a list of all 1.5 million FSA and NRCS customers. The list would include taxpayer identification numbers only and would not be targeted or screened for high-income earners.
· USDA does not plan to obtain actual tax returns from IRS or even actual amounts from those returns.
· IRS would simply provide a list of taxpayer identification numbers that may potentially exceed AGI limitations, based on criteria developed by USDA to apportion income between farm and nonfarm income.
The list of tax payer identification numbers that FSA receives from IRS would be used for further investigation. USDA plans on notifying the producers on the list that it needs additional information concerning their average AGI.
If the number of taxpayers is relatively small, USDA would process the additional information in a centralized location. This would prevent tax information from being reviewed by the FSA county committee, who may be acquaintances of the producers.
If a determination is made that a producer exceeded the AGI limitations, the producer would be given appeal rights.
Benefits of USDA/IRS Collaboration
Some in the public have expressed concern that the collaboration is an unwarranted invasion of privacy and contravenes the intent of Congress. The process plans to keep sensitive information out of the local county office and would ensure compliance with the average AGI requirements imposed by statute. Individuals would not have to show sensitive financial information to their neighbors who may work in the local county office.
The collaboration would allow USDA to comply with statutory requirements while reducing the burden on producers. Producers may no longer be required to obtain verification from an attorney or CPA.
In summary, USDA believes the projected process will ensure compliance with the average AGI limitations imposed by statute while reducing the burden on producers.
Privacy Act and FOIA Issues
The recent letter to the Secretary from eight Members of Congress highlights the concern with the privacy issues. The Department will work to ensure that proprietary financial and confidential producer information remains private.
It is important to note that GAO issued a report on October 24, 2008 entitled "Federal Farm Programs: USDA Needs to Strengthen Controls to Prevent Payments to Individuals Who Exceed Income Eligibility Limits.” Their report was based on the implementation of the $2.5 million average AGI limitation provided by the 2002 Farm Bill that was in effect prior to the 2008 Farm Bill. In their study, GAO found that with the $2.5 million average AGI limitation, 2,702 individuals that had AGI in excess of the limitation received $49 million for the years 2003 through 2006.
Using the above data, GAO projected with lower AGI limitation of $500,000, a total of 23,506 individuals were likely to have incomes above this threshold and would be ineligible for payments totaling as much as $90 million.
For the 1.1 million individuals who received farm program payments and filed a 2006 tax return:
-- 9,651 reported AGI exceeding $1 million
-- 23,931 reported AGI exceeding $500,000
In each of the years included in the GAO study, USDA issued over $16 billion in program payments to over 2.2 million participants under more than 80 programs. However, not all programs were subject to the AGI provisions.