While the new USDA Emergency Relief Program (ERP) is offering additional financial assistance to farmers who collected some type of crop insurance indemnity in either 2020 or 2021, Paul Neiffer has some concerns the program needs some clarification before farmers file their applications.
Neiffer, a principal with CliftonLarsonAllen LLP in the Agribusiness and Cooperatives group, weighed in on the ERP during an AgriTalk discussion earlier this week.
For starters, he says the program has a payment limit of $125,000 for farmers producing commodity crops including corn, soybeans and wheat. However, those growers who derive more than 75% of their adjusted gross income (AGI) from farming are able to qualify for an additional $125,000, meaning they could receive up to a total of $250,000.
“But as usual, the Farm Service Agency (FSA) handbook dealing with this whole subject is, at best, obtuse. It’s very hard to understand,” Neiffer says.
He references three additional issues that he believes USDA-FSA needs to resolve for farmers who want to participate in the program:
1. So-called financial gains that result from selling farm equipment or trading in farm equipment need clarification.
“There is a special rule that requires that farm income is more than 66.66% of overall AGI before you can include equipment gains,” Neiffer writes in a blog. “This can bounce out including this income in many situations especially tax years 2018 and later when trade-ins are now taxable. The examples in the handbook are vague at best and a CPA and attorney need to use their judgement in determining whether these gains qualify or not
2. Some state FSA offices have said that if the farmer has had negative farm AGI, they cannot qualify for an extra payment – even though 100% of their income is from farming.
“We have gotten confirmation from the local state office that if your overall AGI and farm AGI is negative, then you don’t qualify for the extra payment,” Neiffer says. “This is based on the interpretation from the old WHIP+ rules which then became ERP. Many farmers tend to show low amounts of farm income since they don’t want to pay tax. If this applies to your farm situation, you may not qualify for the extra ERP payment.”
3. FSA needs to clarify how married farmers need to file.
As a for instance, Neiffer notes if a farmer says 100% of their income is from farming but their spouse is a teacher in town, that could potentially “kick them out of the program.”
“For those farmers in separate property states, the CPA should be allowed to calculate your AGI and farm AGI based on if you had filed a married filing separate return,” Neiffer writes. “The outside income earned by the spouse can then be eliminated from the AGI calculations for the farmer allowing the farmer to qualify. This does not work for community property states.
“The bottom line is that not all farmers will qualify for the extra payment limit. As a CPA or attorney, some judgement is required in determining farm AGI and Form FSA-510 cannot be finalized without the CPA or attorney providing the required letter. You cannot change your farm structure to qualify for an extra payment. This is all based on history that occurred no later than 2019 that was reported on your tax return. Changing your structure today will not help.”
You can listen to Neiffer’s discussion on AgriTalk here:
