Originally written and published by Paul Neiffer with Farm CPA Report FSA yesterday released FSA notice PL-313.
This notice provides updated guidance for calculating average gross income for purposes of meeting the more than 75% farm average gross income requirements under the ECAP program to allow for an increased payment limit.
These guidelines will likely be incorporated into Handbook 6-PL soon.
Some of the key items from the update are as follows:
• Instead of relying on certain lines from tax forms, it provides guidance on what income is farm or not farm income and how to calculate gross income. For example, on Schedule F you would add back expenses to arrive at gross income.
• If you show a hedging loss on Schedule F, that will reduce gross income.
• The cost of livestock or other farm products purchased on line 1b will reduce farm income.
• Leasing of ground to renewable energy companies is not farm income. Only income from direct production of renewable energy by the farm operation is farm income. This would also be true for the regular calculation of farm income for adjusted gross income purposes too.
• If a farmer invests in an entity that processes, transports, stores, etc. farm commodities, that likely is not farm income unless the farmer’s commodities are processed directly by that entity and ownership is material. For example, a cotton producer who owns 5% of a cotton gin LLC and has some of his production processed by that gin, that gross income is not farm income. However, if that farmer owns 75% of that gin LLC and all of his cotton is processed by this gin, that would likely be farm income.
• You are still required to meet the 66.66% test for equipment gains, custom services and sale of farm inputs.
• Wages and dividends from a family farm corporation will be farm income. Owners of a farm corporation are required to also verify if their farm income exceeds 75%. This is required to determine if the corporate extra payment will be reduced due to the owner already being allocated a full extra payment outside of the corporation, etc.
• Remember that payments are attributed down to four layers of ownership and an individual can only be allocated one payment (plus the extra payment if applicable). This means that if the individual already has been allocated a full extra payment, their ownership share in the corporation would be reduced.
• Example, assume that Sue owns 100% of ABC Farm Corporation. The corporation qualifies for $300,000 of ECAP payments. She also has her own Schedule F farm operation that qualified for $300,000 of payment too. She is a farmer, but between her and the corporation they can in total only receive $250,000 of payments due to attribution.
• LLCs, LLPs, LPs, LLLPs, are treated similar to corporations. This is why FSA will ask all of the owners to verify their average gross income, etc.
Again, it is much easier for farmers to meet the more than 75% test for average gross income versus adjusted gross income and the updated guidance will help us calculate AGI.
FSA Provides Update on Average Gross Income