Farm Bill Changes Expand Legal Entities and Family Eligibility for Commodity Programs

Source: By Chris Clayton, DTN/Progressive Farmer • Posted: Tuesday, April 17, 2018

OMAHA (DTN) — While most of the focus on the House farm bill is on changes to nutrition programs, a new kerfuffle has cropped up over changes to farm programs that would benefit LLCs, S corporations and farmers who want to enroll cousins, nieces and nephews for commodity payments.

The changes, if they become law, would expand the eligibility of pass-through entities for farm-program payments to include limited-liability corporations and S-corps, as a way to avoid adjusted gross income caps for commodity payments. Currently, joint ventures and general partnerships are not subject to payment limits or income means testing. New language would expand those provisions for LLCs and S-corps.

In a response to DTN, House Agriculture Committee GOP staff stated there have been several examples of farmers forming LLCs based on advice of attorneys who did not understand the impact of limiting the entire farm to a single $125,000 payment limit. In at least some instances, that failed decision on which entity to form has led to bankruptcies, committee staff wrote in an email.

The House Agriculture Committee convenes Wednesday in Washington, D.C., with Chairman Michael Conaway, R-Texas, seeking to advance the farm bill over objections from Democrats who are especially critical of the bill’s language tightening job and training requirements for people on the Supplemental Nutrition Assistance Program, as well as capping eligibility nationally to families earning up to 133% of the federal poverty line — $32,319 for a family of four.

The House bill also broadens the definition of family farms eligible for commodity payments to include first cousins, nieces and nephews. They’d be eligible for farm-program payments as long as they can show they contribute to farm management decisions.

This was done because of scenarios in which brothers and their children farm, but if a brother passes away, then “the lineal connection would be broken between the surviving brother and the offspring of the deceased, therefore the operation would no longer qualify as a family farm” and that would limit the farm with listing the cousin, nephew or niece as a farm manager to qualify for payments.

The National Sustainable Agriculture Coalition came out aggressively Monday against the new language in the farm bill, stating the changes would “pave the way for further farm consolidation.”

Ferd Hoefner, a policy analyst for NSAC, said some of the language in the House bill would go “back to the days of the full-on Mississippi Christmas Tree.”

Hoefner said in an interview, “It’s just a complete evisceration of means testing and payment limits.”

The “Mississippi Christmas Tree” was a farm payment strategy dreamed up after the 1985 farm bill came out. Farmers created multiple partnerships and corporations to increase the payments. As a 1987 Washington Post article noted, planted acres declined in 1986, but an additional 100,000 wheat farms and 160,000 corn farms had sprung up to collect farm program payments. A 1987 federal spending bill then reined in farm payments.

The Congressional Budget Office shows a small bump in commodity spending from 2019-23 of about $149 million. Overall, the House Ag Committee draft would increase spending $3 billion over the next five years. Conaway said last week that everyone knew he was working to come in with a farm bill that was basically budget neutral, so he did not have funding to make major changes to commodity programs.

“Everybody wanted more money in their particular aspect of the farm bill, and I didn’t have any new money there at all,” Conaway said. “That reality is there. Our producers know it. They’ve been pretty blunt in understanding where the perimeters were for a new farm bill.”

Dale Moore, vice president of public affairs for the American Farm Bureau Federation, said AFBF’s policy is that there should not be payment limits on farm programs and the group does not have a policy on adjusted gross income caps. Moore said some of the changes being made by the committee are to ensure all farmers are treated fairly regardless of how their businesses are structured.

“If there’s going to be payment limits they need to be fair and balanced,” Moore said, adding that payments also need to be flexible. He added that there is still direct attribution tying payments back to the individual. “You can have as many entities as you want, but you still have direct attribution.”

Opening up the entities and family eligibility for the farm safety net could draw criticism when the push in the nutrition title is to wean people off the Supplemental Nutrition Assistance Program. Still, Moore notes there is no savings in nutrition going to other parts of the farm bill.

“From our standpoint, it simply makes it easier for farmers to pick whatever legal structure works best for them, and I think the committees are not commenting on it one way or the other,” Moore said.

Joshua Sewell, senior policy analyst at Taxpayers for Common Sense, said the farm bill tweaks around the edges, but basically creates “loopholes” for more people to collect commodity payments. Sewell said there isn’t enough conversation over whether the farm bill improves the rural economy or simply increases farmer and rancher dependency on Washington, D.C.

“Let’s have that debate on whether you need six partners to run a rice farm,” Sewell said. “Let’s have the debate about what the ag sector and these ag businesses need.”

The 2014 farm bill placed a $125,000 individual payment cap ($250,000 for married couples) on all combined commodity programs, whether that was ARC or PLC. Payments were also limited to those farmers with adjusted gross income below $900,000. Commodity certificates then eliminated any cap on marketing-loan gains, and the House version of the new farm bill sticks with the premise that no cap is needed on marketing loans.

USDA tightened the rules defining “actively engaged” in 2015 and limited corporations to up to three farm managers after a Government Accountability Office found a few farm entities had listed more than a dozen people, in some instances, collecting commodity payments. When the rules were changed in 2015, USDA estimated about 3,200 general partnerships would lose out on roughly $106 million in commodity payments over a three-year span.

The House bill also would expand eligibility for disaster programs by exempting farmers and ranchers in pass-through businesses from the $900,000 limit on adjusted gross income (AGI) — if the business receives at least 75% of its income from farming, ranching or forestry. This was done because recent disasters have shown the AGI limit “fails to recognize the significant differences in the level of investment needed for annual row crops vs. 10-year investments in herds, or up to 30-year-plus investments in tree stands and vines,” House Ag Committee staffers stated.

Pointing to an example, House Ag staffers stated that the AGI limit on disasters means that only an estimated 10% of citrus farmers affected by hurricanes in Florida would have even been eligible at all for Tree Assistance Program payments in 2017.