Despite claims by some lawmakers to the contrary, Congress did not mandate any changes in the “actively engaged” language in the new farm bill’s payment limit reforms, National Cotton Council leaders are saying.

Two Midwest senators, Charles Grassley of Iowa and Byron Dorgan of North Dakota, have written Agriculture Secretary Ed Schafer, urging him to produce interim rules on actively engaged and schemes and devices to “restore integrity to our payment limit system.”

Grassley, one of the Senate’s longest-running advocates for payment limit reform, claims that an amendment he and Dorgan offered during the farm bill debate should serve as a “starting point” for USDA’s rewriting of its rules on payment limits. The amendment failed to receive the 60 votes Senate leaders said it needed for passage.

“We will communicate to USDA that Congress did not include any requirement to change the criteria for meeting the definition of actively-engaged-in-farming other than those necessary to implement the spouse eligibility provisions,” said National Cotton Council Chairman Larry McClendon, a cotton producer from Marianna, Ark.

“We believe it is extremely important that USDA be aware of this in spite of Senators Grassley and Dorgan’s arguments to the contrary.”

Speaking at a joint meeting of the American Cotton Producers and The Cotton Foundation and later at the Council’s Mid-Year board of directors meeting in Memphis, McClendon said the Council has established a working group of certified public accounting firms with expertise in farm operations to assist in developing recommendations for USDA’s new income testing rules.

The new farm bill bars commodity program payments to persons with more than average adjusted gross non-farm income of $500,000 or average adjusted gross farm income of $750,000 or conservation program payments to persons with adjusted gross non-farm income of more than $1 million – unless the adjusted gross farm income is two-thirds of adjusted gross income.

“USDA will have to develop entirely new tests for adjusted gross farm income and adjusted gross non-farm income,” said McClendon. “Unlike the current adjusted gross income test which can be verified using a tax return if necessary, the new tests will require USDA to develop definitions and procedures to calculate farm and non-farm income.

“The Council has established a working group of top CPA’s to assist us in developing recommendations, and we’re also working with some outstanding law firms with expertise in this area. We have also included representatives from rice and peanut groups in the income testing working group.”

McClendon said the working group is developing recommendations for calculating adjusted farm gross income using guidance from the statute and accepted accounting principles. Members have also discussed procedures which could be used to allocate income for couples who file income tax returns jointly.

“We will continue to be actively involved in the process of developing a reasonable and equitable procedure to apply the new income tests since the consequence of failing the tests are so severe.”

In their letter to Schafer, Grassley and Dorgan asked that USDA begin immediately to review the rules for actively engaged farmers and devices and schemes. (The latter is a term that generally applies to attempts to evade farm program rules.)

“Very few of us were satisfied with the farm payment reform that was finally agreed to in the farm bill, so this is an opportunity for the Bush administration, that you’d think they’d be crying for, to leave its mark in this area,” Grassley said. “The farm bill left some big loopholes that we can start to close with the right action by the administration.”

The Iowa senator has led congressional efforts to put a hard cap on farm payments and ensure that payments go to people in the business of farming. During the Senate farm bill debate, Grassley and North Dakota’s Dorgan introduced a payment limit amendment that would have capped farm program payments at $250,000. The amendment received 56 votes, but failed because leaders ruled it needed a 60-vote margin.

One area where Grassley and the Council do agree is USDA’s interpretation of a farm bill provision barring payments to farms of less than 10 acres. The Agriculture Department is refusing to allow farmers to reconstitute those smaller farms into larger operations.

“The Department of Agriculture can’t just make up its own rules when implementing a law that is clearly written,” Grassley said in another letter to Schafer. “The Department needs to follow the law and implement it as Congress intended. USDA’s actions punish small farmers. Iowa farmers won’t tolerate it, and neither will I.”

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