New payment limit traps

August 12, 2008 07:00 PM

Farmers breathed a sigh of relief when the long-awaited 2008 farm bill left the $40,000 direct payment and the $65,000 countercyclical payment (CCPs) limits intact. Congress also abolished the $75,000 limit on loan deficiency payments (LDPs) and marketing loan gains, so producers no longer have to play the generic commodity certificate game. Southern farmers preserved their cherished separate payment limits for peanuts.

But two major rule changes may cost larger operations payments:

• Beginning with the 2009 crop year, the three-entity rule is dead. All program payments will be attributed to individuals and payments to entities reduced pro rata to the extent the individuals who own those entities also receive payments. Farmers may still farm jointly in partnerships, but the number of payments will match the number of partners.

• The new Adjusted Gross Income (AGI) rules may also prove troublesome. The old law's rules barred few real farmers from receiving payments. The new rules are much stiffer. Any farmer whose adjusted farm income exceeds $750,000 is ineligible for direct payments but remains eligible for CCPs, LDPs and the new ACRE payments. Any farmer whose average adjusted nonfarm income exceeds $500,000 is ineligible for all payments except conservation payments. Persons with an AGI in excess of $1 million are ineligible for CRP and other conservation payments unless at least two-thirds of that income is from farming. As with the old law, AGI is calculated in each case on a three-year average.

There are at least two ways producers who are not also NFL players or rock stars may be caught by these new AGI rules:

1. Farm income includes the sale of farmland. At these prices, even a small sale could trigger the cap.

2. Renting farmland and equipment to your own farm partnership. To comply with farm program rules, such land and equipment leases must be at fair market rents, which are generally high, and if the partnership pays most farming expenses, the producer who collects this rent may have few expenses to deduct from the rental income.

Husbands and wives who farm together may be able to double both the farm and the non-farm AGI limits even if they file a joint return, if the couple's accountant certifies how the income on their joint return would have been allocated between them had they filed separately. Thus, a couple with a joint-farm AGI of $1 million may avoid losing direct payments if they can allocate that income half to the husband and half to the wife.

Allen H. Olson, an agricultural lawyer with Moore, Clarke, DuVall and Rodgers, P.C. in Albany, Ga.


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