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Adjusted Gross Income Proposed Rule Summary
11/14/02
BACKGROUND
Section 1604 of the Farm Security and Rural Investment Act of 2002 (2002 Farm
Bill) amended the Food Security Act of 1985 (1985 Farm Bill) by adding a new
Adjusted Gross Income (AGI) provision that limits the eligibility of certain
individuals and entities for commodity and conservation programs benefits.
The Commodity Credit Corporation (CCC) published in the Federal Register on
October 28, 2002, a Proposed Rule, titled “Income Limits,” that sets forth the
criteria to be applied in determining program benefit eligibility. The rule has
a 30-day comment period that ends November 27, 2002. The Farm Service Agency has
the lead for this rule.
PROPOSED AGI APPLICABILITY
For the 2003 through 2007 crop, fiscal, or program years, an individual or
entity is not eligible for program payment or benefit if the individual’s or
entity’s average adjusted gross income exceeds $2.5 million for the three tax
years immediately preceding the applicable year. An exemption is provided in
cases where 75 percent of the adjusted gross income is derived from farming,
ranching, or forestry operations. The rule further defines that CCC will not
consider the following as income from farming, ranching, and forestry
operations:
- Income from selling land used to produce forestry or agricultural
commodities
- Farm or forestry implement sales by a retail dealership
- Investment income
- Income from sales at a market unless the commodity being sold was produced
by the person
- Income from sales as a commission broker, auctioneer, or warehouse
operator or similar enterprise
- Undifferentiated income from integrated operations
CCC CONSERVATION PROGRAMS COVERED
AGI applies to programs that have Title XII of the 1985 Farm Bill and Title II
of the 2002 Farm Bill as their source authority. This includes:
- Conservation Corridor Demonstration Program
- Conservation Reserve Program
- Conservation on Private Grazing Lands
- Conservation Security Program
- Desert Terminal Lakes
- Environmental Quality Incentives Program
- Farmland Protection Program
- Grassland Reserve Program
- Grassroots Source Water Protection Program
- Great Lakes Basin Program for Soil Erosion and Sediment Control
- Wetlands Reserve Program
- Wildlife Habitat Incentives Program
TYPES OF PAYMENTS COVERED
Only payments that are program benefits are encompassed by AGI determinations.
The Office of General Counsel has determined that cost-share assistance and
easement and rental payments are benefits under the legal definition and,
therefore, program participants receiving such benefits under the covered
conservation programs are subject to AGI determinations of payment
eligibility.
For FPP, the landowner, not the cooperating entity, is subject to AGI
limitations because the ultimate program beneficiary is the landowner.
Payments to technical service providers and contractors for services obtained
under a program are not covered by AGI. Services provided include: appraisals,
surveys, closing costs, etc.
AGI APPLICATION TIMING
The AGI determination for program benefit payment eligibility will be
performed at the time the landowner or program participant signs the
conservation contract or, in the case of FPP, when the cooperative agreement
is signed.
The AGI determination will remain in effect for the life of the contract.
ENTITIES
Tribal and State governments are not subject to AGI limitations.
Non-government organizations are subject to AGI if they are program
participants receiving program benefits. They are not subject to AGI if they
are receiving payments for services rendered as vendors.
For charitable organizations, the adjusted gross income would be based upon
the unrelated business taxable income reported to the Internal Revenue
Service, less any other income CCC determines to be from commercial
activities. Currently, that amount is specified on line 34 of the IRS form
990-T.
COMMENSURATE REDUCTION
Payments subject to AGI to an entity, general partnership, or joint venture
will be reduced by an amount commensurate with the direct and indirect
interest in the entity, general partnership, and joint venture of each
individual or entity determined to be in excess of the AGI limitation.
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