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USDA, IRS Partner on Payment Limits

According to USDA officials, a number of factors - such as resource constraints that hamper its ability to examine complex tax and financial information as well as a lack of authority to obtain and use IRS tax filer data for such purposes—contribute to USDA's inability to verify that each individual who receives farm program payments complies with income eligibility provisions.

Well, that may all be changing with an agreement between USDA and IRS to establish an electronic information exchange process for verifying compliance with the adjusted gross income provisions for programs administered by USDA's FSA and Natural Resources Conservation Service.

This agreement will ensure that payments are not issued to producers whose adjusted gross income (AGI) exceeds certain limits. The limits set in the 2008 Farm Bill are $500,000 non-farm average AGI for commodity and disaster programs; $750,000 farm average AGI for direct payments; and $1 million non-farm average AGI for conservation programs.

The electronic process that USDA developed with IRS reviews data from tax returns, performs a series of calculations, and compares these values to the AGI limitations from the 2008 Farm Bill FSA and NRCS will receive a record that indicates whether or not the program participant appears to meet the income limits.

More burdensome Anytime two government agencies are sharing information it will make things more difficult for farmers, explains Chad Hart, agricultural economist at Iowa State University.

Written consent will be required from each producer or payment recipient for the new process. No actual tax data will be included in the report that IRS sends to USDA. As part of the review and evaluation process, participants whose AGI may exceed the limits will be offered an opportunity to provide third party verification or other information to validate their income.

Hart adds that anytime you evaluate agricultural payment limitations, especially with they type of limitations set at dollar amounts, the south has a lot more issues to deal with because of the structure of southern agriculture.

Larger farmers easily hit those targets quicker. In addition, cotton and rice cooperatives have many producers under them. Hart says those corporations and cooperatives could have to change how money flows to individuals.

James Richardson, co-director of Texas A&M University's Agricultural and Food Policy Center, states the best advice for producers is to sit down with your FSA office to evaluate options moving forward.

The easiest time to deal with payment limitations is in years with high prices because countercyclical payments are not doled out. Richardson says that is the case for many commodities this year.

"Each farming operation is unique and blanket recommendations just don't work, particularly when you say the words 'payment limitations,' " Richardson says.