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USDA issues proposal for $2.5 million means test

It didn't receive much attention while competing with the buildup to the Nov. 5 elections, but USDA released its proposal for implementing the farm bill's $2.5 million adjusted gross income limit for farm program eligibility.

The rule says USDA will look at the adjusted gross incomes reported by farmers to the IRS for the past three years to determine if they remain eligible for direct and counter-cyclical payments, loan deficiency payments and conservation program payments. The $2.5 million limit on adjusted gross incomes was one of several provisions in the Grassley-Dorgan payment limit amendment in the Senate-passed version of the Farm Security and Rural Investment Act.

Because other provisions — the $275,000 cap on payments to a husband and wife, elimination of the three-entity rule, and trashing commodity certificates — were considered so onerous for Southern producers, the $2.5 million “means test” using adjusted gross income was mostly overlooked in the farm bill debate.

Although Sens. Grassley of Iowa and Dorgan of North Dakota have not offered much explanation for the provisions in their amendment, it's thought that the $2.5 million means test was aimed at millionaires like basketball star Scottie Pippen who received big payments from farm land holdings.

The provision exempts farmers if 75 percent or more of their income comes from farming, ranching or forestry operations. But USDA officials say interpreting that statement may not be as easy as it seems.

USDA has no experience in determining from IRS documents which income stems from farming, ranching or forestry and which from other business operations.

To help make an accurate determination of a farmer's income, USDA is proposing the following rules:

  • Income from selling land used to produce forestry or agricultural commodities would not be considered derived from framing, ranching or forestry;
  • Implement sales by an ag dealership would not be considered farm or forestry income, but the sale of equipment otherwise subject to depreciation expense on the IRS Form 4865 or Schedule F would be;
  • Investment income of an individual would not be considered income from farming, ranching or forestry even though the invested funds were derived from such sources;
  • Income from sales at a market would only be considered to be income from farming, ranching and forestry if the commodity being sold was produced by the person;
  • Income from sales as a commission broker, auctioneer or warehouse operator or similar enterprise would not be income from farming, ranching or forestry;
  • In integrated operations, undifferentiated income, for example, income that could not be separated between the production of the tree and sale of a finished product, would not be considered to be derived from farming, ranching and forestry.

I remember conference committee members saying the Grassley-Dorgan provisions would be difficult to interpret, but that didn't seem to faze the proponents. Now, maybe they will understand the difficulty of the challenge they created.

Comments on the proposal are due Nov. 27.

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