By ERIN HERBOLD-SWALWELL
We’ve received questions recently from readers about the USDA farm program and how possible changes in it brought about by the new farm bill may affect farmers.
Congressional leaders are at work on the 2012 Farm Bill, and people in the farming community wonder what the law will be this time next year. Politicians and producers, alike, are discussing issues such as payment limitations, direct attribution, direct payments and Adjusted Gross Income, or AGI, limitations. It remains to be seen what changes Congress will enact and USDA will implement, but it’s a good idea to reacquaint ourselves with the changes enacted in the last farm bill.
As for AGI limitations, remember, the FSA looks at each entity, the individuals with ownership interests in the entity and individuals that own farmland or are involved in a farming operation separately. FSA looks at it this way for the purpose of determining whether or not the individual or entity exceeds the AGI limitations to qualify for certain farm program payments.
FSA considers C and S corporations, LLCs, LLPs and LPs as entities for purposes of the federal farm programs. To determine AGI, the FSA looks at the three taxable years preceding the most immediately preceding complete tax year. For instance, in 2012, the average AGI will be based on the 2008, 2009 and 2010 crop years. The individual and the entity are required to certify their income on the FSA form CCC-926 or by way of an acceptable statement from a CPA or attorney. An individual or entity can exceed FSA’s AGI limitations in three ways:
• If the entity or individual exceeds the $500,000 average AGI (nonfarm income), he or she is ineligible for commodity program benefits, including, but not limited to, direct payments, and ACRE, SURE and LDP payments.
• If the entity or individual exceeds $750,000 AGI farm income, he or she becomes ineligible for direct payments.
• If the entity or individual makes greater than $1 million AGI nonfarm income, he or she becomes ineligible for conservation programs (unless 66.66% or more of AGI is from farm income).
With the 2012 bill on the horizon, now is also a good time to recap some of overlooked laws that are on the books.
Recently, we received a question from a reader asking what the consequences are if a producer attempts to fill or convert a wetland or farm those erosion-prone (highly erodible) areas on the land. The consequences can be steep if a producer intends to participate in the federal farm program or qualify for direct payments. If NRCS discovers a producer engaging in these activities, that producer may be held in violation of Swampbuster and Sodbuster. Remember these provisions? They were creations of the 1985 Farm Bill.
Sodbuster provides that persons are ineligible for benefits under certain USDA-administered programs if they plant an agricultural commodity on a field where Highly Erodible Land, or HEL, predominates. Swampbuster, on the other hand, provides that a producer becomes ineligible for certain USDA programs if they plant an ag commodity on a wetland converted to farmland after Dec. 23, 1985, or if the producer converts a wetland after Nov. 28, 1990, by draining, dredging, filling or leveling a wetland to make production of an ag commodity possible.
Producers remain ineligible for most USDA benefits, including direct payments, until the wetlands or HEL are restored (or the loss is mitigated).
It does appear that a producer who is in violation of Sodbuster or Swampbuster remains eligible for crop insurance coverage. In 1996, Congress removed the crop insurance restrictions from the provisions. If an owner of farmland intends to sell the noncompliant property, then special tax rules apply to the sale. Any gain realized on the disposition of the land is treated as ordinary income to the taxpayer, while any loss on the disposition is treated as a long-term capital loss.
Remember, violations of the provisions run with the land. In reality, the land would not be worth as much to the purchaser that wanted to farm the property and receive federal farm program benefits.
If a landlord refuses to comply with provisions of Sodbuster or Swampbuster, the tenant who leases the property will not be able to receive farm program payments even though they were not the cause of the violation. However, the tenant is only disqualified as to the land they farm for the landlord, if they are farming other parcels in good faith and attempting to comply with these conservation provisions.
It is likely Congress will discuss the provisions we’ve touched on in this column in upcoming months. It remains to be seen what the outcome will be.
Herbold-Swalwell is an attorney with Beving, Swanson and Forrest in Des Moines.
Get an explanation
If you need a refresher on the concepts and rules involved with adjusted gross income, direct attribution or payment limitations with the USDA farm program, here are some resources.
Iowa State University Extension offers a one-stop website at www.extension.iastate.edu/polk/news/direct+
attributions.htm. Also, www.calt.iastate.edu keeps tabs on developments with the 2012 Farm Bill.
This article published in the March, 2012 edition of WALLACES FARMER.
All rights reserved. Copyright Farm Progress Cos. 2012.