January 2010

Overview

The 2008 Farm Bill required the implementation of the average Adjusted Gross Income (AGI) limitations for program eligibility for the 2009 through 2012 program years. The average AGI provisions are applicable to the majority of programs administered by the Farm Service Agency (FSA) and Natural Resources Conservation Service (NRCS).

Applicability

All persons and legal entities requesting certain program payments, either directly or indirectly, are subject to average AGI provisions. Persons or legal entities whose average AGI for the three taxable years preceding the most immediately preceding complete taxable year exceeds the qualifying limits are ineligible for the applicable payment. If the payments are issued to an entity, general partnership or a joint venture, payments are reduced in an amount that is commensurate with the direct and indirect interest of any member or interest holder who is non-compliant with average AGI.

New Compliance and Verification Procedure

The 2008 Farm Bill required the establishment of valid procedures under which to conduct audits of persons and legal entities determined most likely to exceed the AGI limitations. USDA and the Internal Revenue Service (IRS) have developed an electronic information exchange process strictly for the purpose of average AGI verification. This process electronically looks at certain line items on tax returns filed for the applicable three-year period; performs a series of calculations to arrive at the average amounts; and then compares these values to the average AGI limitations. USDA receives the results of these comparisons with indicators of whether the participant appears to exceed or not exceed the average AGI amounts. No actual tax data will be included. The cases that appear to exceed the average AGI limitations will be received and evaluated by FSA state office or headquarters personnel.

Written Consent

IRS requires written consent from the individual or legal entity to provide USDA verification of the average AGI. Such written consent is given by completion of forms CCC-927, Consent to Disclosure of Tax Information - Individual; or if a legal entity, CCC-928, Consent to Disclosure of Tax Information - Legal Entity. These forms allow for the selection of the appropriate year or years and authorize IRS to perform the average AGI calculations. These consent forms must be completed for the same year or years an individual or legal entity was required to provide an AGI certification. Failure to provide the written consent will require refund of applicable payments received from FSA and NRCS.

Certifications

Participants in CCC programs subject to average AGI rules must annually certify their eligibility to receive benefits by either submitting a statement from a certified public accountant or an attorney, or by completing form CCC-926. This form may be obtained from local FSA and NRCS offices or online at: http://forms.sc.egov.usda.gov/eForms/welcomeAction.do?Home.

Definitions

Adjusted Gross Income: AGI is the legal entity's or individual's IRS-reported adjusted gross income, or a comparable measure as determined by CCC.

Adjusted Gross Farm Income: Income from activities related to farming, ranching or forestry is considered adjusted gross farm income. (See Table 1).

Adjusted Gross Nonfarm Income: The difference between adjusted gross income and adjusted gross farm income is considered the adjusted gross nonfarm income.

Legal Entity: The term "legal entity" includes a corporation, joint stock company, association, limited partnership, charitable organization, or similar entity, including any such entity or organization participating in the operation as a partner in a general partnership, a participant in a joint venture, a grantor in a revocable trust, or as a participant in a similar entity, including joint ventures and general partnerships.

Multiple AGI Limitations

Different income thresholds will be used to determine eligibility for different CCC programs as described in Table 2.

A person or legal entity with:

Base Period for Determining Average AGI

A 3-year average AGI will be used to determine whether an individual or legal entity qualifies to receive program benefits subject to AGI rules. Base years for computing average AGI are:

Annual Certification

Annual certifications of AGI compliance are required from each individual and legal entity requesting CCC payments either directly or indirectly. Annual certifications are made on form CCC-926, or by a statement from a certified public accountant or an attorney.

Tracking of AGI Through Entity Ownership

If the participant is a general partnership or a joint venture, AGI certifications are required from each member who is an individual or entity, and from each embedded interest holder.

If the participant is an entity, AGI certifications are required from the participating entity and from each interest holder who is an individual or entity and from each embedded interest holder.

Compliance with AGI rules will be tracked through four levels of legal entity ownership. If individuals or entities within those four levels do not comply with average AGI provisions, payments will be reduced by an amount commensurate with the ineligible share.

Definition of Farm Income

General farm income includes income derived from the production of crops and livestock, from ranching and forestry, and other income reported on Schedule F of the IRS tax forms. See Table 1 for more information.

For More Information

Further information on this and other FSA programs is available from local FSA offices or on FSA's Web site at: http://www.fsa.usda.gov.

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, genetic information, political beliefs, reprisal, or because all or part of an individual's income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and TDD). To file a complaint of Discrimination, write to USDA, Director, Office of Civil Rights, 1400 Independence Avenue, SW., Washington, DC 20250-9410, or call (800) 795-3272 (voice) or (202) 720-6382 (TDD). USDA is an equal opportunity provider and employer.