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What are the rules for AGI?

To determine a participant’s eligibility for USDA farm program benefits, what are the rules regarding average adjusted gross income, or AGI? What forms do farmers and landowners have to fill out at the local Farm Service Agency office to satisfy AGI provisions?

All persons or legal entities requesting certain program payments directly or indirectly are subject to the average AGI provisions, says Beth Grabau, public relations and outreach specialist at the Iowa FSA state office in Des Moines. Program participants must file form CCC-926, the AGI statement.

Along with the CCC-926, IRS requires written consent from the individual or legal entity to provide USDA verification of the average AGI. Provide this by completing form CCC-927/CCC-928, or Consent to Disclosure of Tax Information.

These consent forms must be completed for the same year an individual or legal entity was required to provide an AGI certification. Participants in USDA farm programs that are subject to the rules for average AGI must annually certify their eligibility to receive program benefits. Grabau answers the following questions regarding the AGI rules.

Question: How does the AGI limitation work for FSA payments?

Answer: For commodity, price support and disaster programs, the AGI limitation in the 2008 Farm Bill was reduced to a three-year average adjusted nonfarm income of $500,000, such that a person or entity shall not be eligible for these programs if the nonfarm AGI exceeds $500,000. Also, under the new regulation, an individual or entity must have a three-year average adjusted farm income less than or equal to $750,000 to qualify for direct payments issued under the DCP, or Direct and Counter-cyclical Payment program. To be eligible for conservation programs, the average adjusted nonfarm income limit is $1 million with allowances for certain exceptions.

Compliance and verification activities will be conducted through a data-sharing process between FSA and IRS. IRS will report the results of this process to FSA on a regular basis. FSA will use this information to determine whether a program participant complies with the average AGI limits, or if further review is required. No actual tax data will be included nor will USDA county office personnel view tax return information.

Question: How is eligibility for some USDA programs determined?

Answer: Individuals and entities must be “actively engaged in farming” with respect to a farming operation in order to be eligible for specified payments and benefits. To be “actively engaged in farming,” the individual or entity must make major contributions to the farming operation. The contributions can be: 1) capital, equipment, land or a combination, and 2) personal labor or active personnel management or a combination.

A payment reduction will be applied to the payment entity if any of the partners, stockholders or members fail to meet this requirement. An exception may apply if at least 50% of the interest is held by members that are providing active personal labor or active personal management. And the members are collectively receiving, directly and indirectly, total direct payments under the DCP and ACRE that are less than or equal to one limitation.

A person of legal entity who is a landowner, including landowners with an undivided interest in land, making a significant contribution of owned land to the farming operation, will be considered actively engaged in farming with respect to such owned land. Producers who are determined as “not actively engaged in farming” will be ineligible for direct and countercyclical program payments, ACRE payments, and any payment or benefit requiring a determination of “actively engaged in farming.”

The definition of income derived from farming, ranching and forestry operations was expanded in the 2008 Farm Bill to include packing, storing and transporting of ag commodities, production of livestock products, farm-based production of renewable energy, sale of land that has been used for agriculture, and in some instances, sale of equipment, and/or providing inputs to farmers, ranchers and foresters.

Question: Which programs run by FSA are subject to payment limitation rules?

Answer: The payment limitation rule for DCP is $40,000 for direct payments, and $65,000 for countercyclical payments. Participation in the ACRE program will reduce the direct payment limit by 20%. For ACRE only, the amount reduced from the direct payment limit will be added to the countercyclical payment limit.

What about other FSA programs? What are the payment limits? CRP is $50,000; NAP, $100,000; SURE, LIP, LFP and ELAP, $100,000; and TAP, $100,000.

Question: How is a payment made to a legal entity attributed or divided up among the people in the entity? For example, a family farming partnership?

Answer: Each payment made to a legal entity is attributed to those persons who have a direct or indirect ownership interest in the legal entity. Each payment made directly to a person shall be combined with the interest of the person in payments received by a legal entity. This change replaces the rule that only allowed three permitted entities to be paid. The date for determining the ownership interest in an entity is June 1.

This article published in the May, 2011 edition of WALLACES FARMER.

All rights reserved. Copyright Farm Progress Cos. 2011.