Monday, June 19, 2017 Ag Law Rooms: Business Formation to Take the Greatest Advantage of FSA Rulles 12:45 p.m. 1:45 p.m.

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1 Monday, June 19, 2017 Ag Law Rooms: Business Formation to Take the Greatest Advantage of FSA Rulles 12:45 p.m. 1:45 p.m. Presented by Bill Bridgforth Ramsay, Bridgforth, Robinson and Raley LLP Post Office Box 8509 Pine Bluff, Arkansas Phone:

2 Bill Bridgforth Ramsay, Bridgforth, Robinson and Raley LLP Post Office Box 8509 Pine Bluff, Arkansas (870)

3 Five year bill: crop years Changes in Commodity Programs Repealed Direct Payment and Counter-cyclical Payment Programs New Commodity Programs Producer Election Price Loss Coverage ( PLC ) Will be made for producers who elected PLC Payments when National Average Market Price for Commodity is less than Reference Price. Every peanut producer that I represent selected PLC. Same for rice. Agricultural Risk Coverage ( ARC ) Will be made when Actual County Revenue for Commodity is less than the ARC Guarantee (Olympic Average County Revenue). Every soybean producer I represent selected ARC. Corn was mixed. 2

4 Payment Eligibility and Limitation Rules Payment Eligibility Rules Actively Engaged in Farming 7 C.F.R. Part 1400, Subpart C Cash Rent Tenant Rule 7 C.F.R. Part 1400, Subpart D Foreign Person Rule 7 C.F.R. Part 1400, Subpart E Payment Limitation Rules Payment Limitations 7 C.F.R. Part 1400, Subpart B Direct Attribution 7 C.F.R Average Adjusted Gross Income Limitation 7 C.F.R. Part 1400, Subpart F FSA Handbook 5-PL 3

5 Payment Limits: Commodity Programs Single limit of $125,000 per person or legal entity (excluding general partnerships and joint ventures) OTHER THAN PEANUTS! For peanuts, there is a separate limit of $125,000 per person or legal entity. Applies to all PLC, ARC, MLG, and LDP payments. DCP Payments were limited to $40,000 per person with no limits on MLG/LDP under 2008 Farm Bill. AGI Limit of $900,000 Applies to Commodity Programs, Conservation Programs, and Disaster Programs 4

6 Issues with 2014 Farm Bill Payments Uncertainty of Payments Whether there will be a payment is unknown until end of marketing year, which is 7 to 9 months after end of calendar year. Timing of Payments If payment is triggered, payment is not made until October of following year PLC/ARC payments were made in October of PLC/ARC payments will be made in October, 2016 and so on. Likely Decrease in Payment Amounts As higher prices drop off, ARC Guarantee will drop significantly. PLC formula will not change except by legislative act. Significant as 2016 national net farm income is forecasted to be down from forecast represents the third consecutive year of decline and would be the lowest since 2002 in both nominal and inflation-adjusted dollars. Continued fight by opponents of Farm Bill to further restrict eligibility. Grassley s new Farm Payment Loophole Elimination Act. He wants to go to only one manager per farming operation and eliminate the family member exceptions for those not involved in the farming operation. He just this week announced that he was going after actively engaged again. 5

7 7 CFR Defines significant contribution of active personal management as: management activities performed on a regular, continuous, and substantial basis to the farming operation, and meets at least one of the following to be considered significant: (1) represents at least 25 percent of the total management hours required for the farming operation on an annual basis; or (2) represents at least 500 hours of management annually for the farming operation. Prior definition is management critical to the overall profitability of the farming operation. 6

8 7 CFR Restricts the number of persons that may qualify for payment by making a significant contribution of active personal management. Limited to 1 person unless farming operation involves more than 2,500 acres in which case it may qualify 1 additional person making a significant contribution of active personal management. If the farming operation is complex, then the farming operation may qualify 1 additional person through management for a total of 3. Complexity of operation to be determined by State FSA Committee based on number of crops produced and size of operation. There was no limit to the number of persons that could qualify for payment by making a significant contribution of active personal management under prior rules. 7

9 7 CFR Recordkeeping Requirements Final rule states that for farming operations in which more than one person seeks to qualify by making a significant contribution of active personal management, the operation must maintain contemporaneous records or activity logs for all persons that make any contribution of management that must include, but are not limited to, the following: (1) Location where the management activity was performed; and (2) Time expended and duration of the management activity performed. 8

10 Par. 222A of FSA Handbook 5-PL (Amend. 3): Any farming operation requesting more than 1 person qualify as actively engaged in farming by making a significant contribution of active personal management, must maintain contemporaneous records or activity logs for all persons that make contribution of management to the farming operation under this section, but are not limited to the following: location, either on-site or remote, where the management activity was performed time expended and duration of the management activity performed description of management activity. 9

11 Par. 222B of FSA Handbook 5-PL (Amend. 3): To qualify as providing a contribution of active personal management, each person in a farming operation covered by the section must: maintain these records and supporting business documentation; and timely make the records available for review by the appropriate FSA reviewing authority, if requested. A form is available from FSA, Form CCC- 902MR, so you can keep up with all of this. 10

12 If a person fails to meet the requirements of Par. 222A and 222B, then both of the following will apply: the person s contribution of active personal management as represented to the farming operation for payment eligibility purposes will be disregarded; and the person s payment eligibility status will be redetermined for the applicable program year. Scheme or Device Determination? It is a trap! That is why I do not have a single farming operation that I represent with more than 1 manager. 11

13 Applicability of New Rule Applies to non-family general partnerships and joint operations seeking to qualify more than one farm manager based solely on providing management or a combination of management and labor. Does not apply to farming operations in which all persons who are partners, stockholders, or persons with an ownership interest in the farming operation or of any entity that is a member of the farming operation are family members. Does not apply to farming operations seeking to qualify only one person as making a significant contribution of active personal management or a significant contribution of the combination of active personal management and labor for the purpose of qualifying only one person or entity as actively engaged. Does not apply to farming operations operated by individuals or entities other than general partnerships or joint ventures. 12

14 Family Member is defined as a person to whom another member in the farming operation is related as a lineal ancestor, lineal descendant, sibling, spouse, or otherwise by marriage. Includes a great grandparent, grandparent, parent, child, including legally adopted children and stepchildren, grandchild, great grandchild, spouse, or sibling of family members. 13

15 Important to Remain under Old Rules if possible. Example If Partnership ABCDE consists of five general partners (Individual A, Individual B, Individual C and Individual D are family members, and Individual E is not a family member. If possible, remove Individual E from the Partnership. If there is another family member that can be added, add them. Individual E can either farm on his own or he, and other non-family members who can provide labor can join together. I have seen a 10 person partnership in which 5 were family members. What they did was divide into 2 partnerships, one with the 5 family members and the other with 1 partner providing management and the other 4 providing 1000 hours of active personal labor. In both of the examples, neither partnership will be subject to the new rule. In the many partnerships in many states that I assist in regulatory compliance, there is not a single partnership which, after reorganization, is subject to the new rule. You don t want to be and you don t have to be. 14

16 Effective Date of New Rule For farming operations that only planted Spring crops, the new rule was effective for the 2016 Program Year. For farming operations that planted Fall crops for the 2016 crop year, the new rule will be effective for the 2017 Program Year. 15

17 In considering adding individuals to a family partnership, remember: The substantive change rule does NOT apply to spouses. So the spouse of a partner can be added and that spouse does not even need to know where the farm is. His or her spouse who provides active personal management or labor automatically qualifies her. The addition of a family member to a partnership as specified in Par. 213 is considered a substantive change. Must provide management or labor. In either case, no 20% increase in base acres is required. 16

18 Proposed Changes For Congress is talking about passing a new Farm Bill this year to apply for With all going on not likely and the 2014 Farm Bill will continue and expire at end of Things are moving slowly. STCs should have been appointed months ago now forecast for August. 3. No Undersecretaries have been appointed and scheduled for September or October. 17

19 Proposed Legislation. The Budget proposes legislative changes to the CCC programs, including targeting commodity, CRP and other program payments to producers that have an Adjusted Gross Income of $500,000 or less. In addition, the Budget targets enrollment in CRP and eliminates all funding for the Biomass Crop Assistance Program Proposed Legislation. The Budget proposes legislative changes to the Federal crop insurance program. These proposals include targeting crop insurance subsidies to producers that have an Adjusted Gross Income of $500,000 or less; establishing a limit of $40,000 for premium subsidies an individual may receive; and eliminating subsidized harvest price revenue coverage. Proposed Legislation. The Budget proposes legislative changes to the Farm Bill programs including the termination of new enrollments in CSP and elimination of RCPP. The Budget also proposes additional funding for EQIP and ACEP, which streamlines NRCS funding by focusing more resources on a primary working agricultural lands program (EQIP) and a primary easement program (ACEP). As EQIP and ACEP provide a substantial portion of the funding and authority for the existing RCPP, many of the existing activities will continue under the proposal.

20 1. There are a number of things driving the consideration for a new bill. The OMB projections in 2013 were that the Direct payments would disappear with ARC and PLC and the Farm Bill would cost very little. Actually, it is the most expensive Farm Bill on record. Commodity prices have tumbled since Projections are that the 2016 payments due in 2017 will be very high especially PLC payments. 2. Peanut separate limit 3. Generic Acres failure of cotton program 4. Battle between cotton and milk. 19

21 MUST DO ADVISE CLIENTS TO: 1. KEEP ALL ENTITIES 2. ADD FAMILY MEMBERS AND SPOUSES WHERE POSSIBLE 3. STAY UNDER THE OLD RULES 4. DO WHAT THEY TELL FSA THEY WILL DO. 5. KEEP GOOD RECORDS AND BE MINDFUL OF RULES 20

22 QUESTIONS? Bill Bridgforth Ramsay, Bridgforth, Robinson and Raley LLP Post Office Box 8509 Pine Bluff, Arkansas (870)