Policy Journal

March 14, 2009 12:56 PM

Changes in the way farm programs operate are nothing new. Some changes are legislated, others come via regulation. Shifts for the 2009 season have come both ways and are raising concern and confusion in farm country.

The George W. Bush administration published a rule that waded into the controversial subject of what is considered "actively engaged” in farming—an issue that had lain dormant for 20 years.

Under the old rules, USDA required that partners, stockholders or members make contributions of active personal labor and/or active personal management and that they had to hold at least a 50% stake in the entity.

The new rules require that each partner, stockholder or member provide personal labor and/or personal management to the farming operation on a regular basis, documentably separate from the contributions of any other partner, stockholder or member. The landowner exemption still applies, however, meaning that a landowner is considered actively engaged.

For those who rent ground, this means additional work must be done to make sure they are actively engaged in farming. USDA's targets, according to those familiar with the Bush administration actions, are those who are thousands of miles away from the farm and only participate in a conference call once a week. Their primary contribution is to add another payment limit.

Once you've provided the information, your county Farm Service Agency (FSA) office has 60 days to tell you in writing whether you are actively engaged in farming and the number of payment limitations applicable. For a
legal entity and joint operation, FSA will state how many payments will be attributed to each partner, stockholder or member according to the ownership share represented. It will also explain if you've had any reductions that result from its determination.

The letter also states: "This determination is based on facts as submitted. You are responsible for promptly notifying the county office of any change that would affect these determinations. Any unrevealed circumstances could require the application of a more restrictive rule.” In other words, you can appeal if you disagree with the determination, but you may face more scrutiny.

While FSA contacts tell us they're not requiring time sheets, we've learned that some county offices are asking for information to back up what farmers have provided.

A concerned response. The situation has drawn the attention of farm-state lawmakers. "Although the 2008 farm bill contained significant reform with the elimination of the three-entity rule, direct attribution and stricter adjusted gross income tests, we note that [it] did not require or direct USDA to make any changes to the actively engaged determination for individuals and entities in farming except in the case of a spouse,” said Senate Ag Committee ranking member Saxby Chambliss (R-Ga.) and 22 other lawmakers. "Unfortunately, instead of clarifying the law, it appears the interim rule makes significant changes that do not follow the statute to actively engaged determinations and other critical eligibility requirements. These unnecessary changes generate more legal questions and confusion regarding actively engaged, and we ask that [they] be withdrawn or clarified in a timely manner.”

So far, USDA Secretary Tom Vilsack has said no to the request.


New Payment Limits

The 2008 farm bill ushered in changes in payment and adjusted gross income (AGI) limits in order to be eligible for government farm program payments.

The new limits are raising concern about the information that farmers will have to provide to verify their nonfarm and farm AGI. While Farm Service Agency (FSA) offices have the "line numbers” from the tax form to find the data, they don't want tax forms. In fact, they can't ask for them, at least not to compile past AGI information.

Verifying your AGI for the remainder of the farm bill is done by self-certification—either by filling out FSA Form CCC-926 or via a letter from your accountant certifying your AGI situation. If you use only the form, FSA could ask for tax
returns to verify income. But if you've submitted a letter from your accountant, don't worry about having to pony up tax returns. So get your accountant on this pronto.

What does all this mean? For 2009, USDA Secretary Tom Vilsack promises no changes. But there could be changes for 2010 and beyond, as the rules on actively engaged are under review. Vilsack is hopeful that the situation won't require him to extend sign-up for the 2009 farm program, currently set to end June 1, 2009.

AGI Guidelines

¡ If nonfarm AGI exceeds $500,000, you are ineligible for commodity, price support and disaster program benefits. (You could take out a marketing loan but would have to repay at principal plus interest or via commodity certificates.)
¡ If farm AGI exceeds $750,000, you are ineligible for direct payments.
¡ If nonfarm AGI exceeds $1 million, you are ineligible for all conservation program benefits, unless 66.66% or more of your average AGI was
derived from activities related to farming, ranching or forestry.


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