USDA Announces IRS Income Verification, 'Actively Engaged' Plans

December 30, 2009 06:00 PM

Roger Bernard, Farm Journal Policy & Washington Editor

USDA has finally announced the results of months of negotiation with IRS relative to the issue of verifying farm income for farm program eligibility and new rules for what is considered "actively engaged" in farming.

IRS Income Verification

USDA finalized a Memorandum of Understanding with the Internal Revenue Service which sets up an electronic information exchange process for verifying compliance with the adjusted gross income provisions for programs administered by the Farm Service Agency and Natural Resources Conservation Service.

The agreement is aimed at ensuring payments are not issued to producers whose adjusted gross income (AGI) exceeds certain limits. The limits set in the 2008 Farm Bill are:

    • $500,000 nonfarm average AGI for commodity and disaster programs;
    • $750,000 farm average AGI for direct payments; and
    • $1 million nonfarm average AGI for conservation programs.

The electronic process that USDA developed with IRS reviews data from tax returns, performs a series of calculations, and compares these values to the AGI limitations from the 2008 Farm Bill. FSA and NRCS will receive a record that indicates whether or not the program participant appears to meet the income limits. Written consent will be required from each producer or payment recipient for this process. No actual tax data will be included in the report that IRS sends to USDA.

As part of the review and evaluation process, participants whose AGI may exceed the limits will be offered an opportunity to provide third party verification or other information to validate their income.

Actively Engaged in Farming

Beginning with the 2010 program year, USDA has amended the rules that govern the requirements to be 'actively engaged' in farming. These rules apply to eligibility for payments under the Direct and Counter-cyclical Program (DCP) or Average Crop Revenue Election (ACRE) program administered by FSA.

USDA has implemented the following change to permit certain operations, most often family run operations, to meet 'actively engaged' in farming requirements under less restrictive rules:

Every stockholder or member of a legal entity, such as a corporation, does not have to contribute labor or management if both of the following apply:

  • at least half of the interest in the legal entity is held by stockholders or members who are providing active personal labor or active personal management that altogether qualifies as a significant contribution to the farming operation;
  • the total direct payments received, both directly and indirectly, by the legal entity and each of the members does not exceed $40,000.

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