Adjusted Gross Income Rules Prompt Questions

USDA rules determine a participant's eligibility to receive farm program benefits, according to adjusted gross income or AGI. What are the rules for AGI?

Published on: Apr 25, 2011

FAQ: 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?

Answer: Provided by Beth Grabau, public relations and outreach specialist at USDA Farm Service Agency's state office in Des Moines, with assistance from FSA program specialist Kevin McClure.

All persons or legal entities requesting certain program payments, either directly or indirectly, are subject to the average AGI provisions. These farm program participants are required to file a form CCC-926, which is the Average Adjusted Gross Income or AGI statement. AGI is the individual's or the legal entity's adjusted gross income as reported to the Internal Revenue Service.

Along with that CCC 926 form, IRS requires written consent from the individual or legal entity to provide USDA verification of the average AGI. You 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 USDA farm program benefits.

Question: How does the AGI limitation work for FSA payments? Please give an example.

For commodity, price support and disaster programs, the AGI limitation in the 2008 Farm Bill was reduced to a 3-year average adjusted non-farm income of $500,000--such that a person or entity shall not be eligible for these programs if the non-farm AGI exceeds $500,000. Also, under the new regulation, an individual or entity must have a 3-year average adjusted farm income less than or equal to $750,000 in order to qualify for direct payments issued under the DCP or Direct and Counter-Cyclical program. To be eligible for conservation programs, the average adjusted non-farm 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 at any time during this process.

Question: How is eligibility for some USDA programs determined?

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 significant 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 Direct and Counter-Cyclical Program (DCP) and the Average Crop Revenue Election Program (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 counter-cyclical program payments, ACRE payments and any payment or benefit requiring a determination of "actively engaged in farming."

Question: What is the definition of income derived from farming?

The definition of income derived from farming, ranching and forestry operations was expanded in the 2008 Farm Bill to also include the 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, the sale of equipment to conduct farm, ranch or forestry operations, and/or providing inputs to farmers, ranchers and foresters.

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

The payment limitation rule for DCP is $40,000 for direct payments, and $65,000 for counter-cyclical 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 counter cyclical payment limit.

What about other FSA program

s? What are the payment limits? Such as SURE, LIP, ELAP, CRP, EQIP, NAP, TAP? CRP has a limitation of $50,000; NAP $100,000; SURE, LIP, LFP, and ELAP $100,000; TAP $100,000.

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

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.

If you have specific questions or need details regarding USDA farm programs, contact your local USDA Farm Service Agency office. You can also get news and information about DCP, ACRE and other USDA programs at www.fsa.usda.gov.

Two Iowa State University Extension Web sites have farm program information and analysis. They are ISU's Ag Decision Maker site at www.extension.iastate.edu/agdm and ISU Extension Specialist Steve Johnson's site at www.extension.iastate.edu/polk/farmmanagement.htm.

And be sure to read the regular column "Frequently Asked Questions about the Farm Program" that appears in each issue of Wallaces Farmer magazine and at www.WallacesFarmer.com