BILL PAYMENT LIMITATIONS
Security and Rural Investment Act of 2002 contain provisions limiting
the amount of payments a "person" can receive per program
year. These limits are $40,000 for direct payments, $65,000 for
counter-cyclical payments and $75,000 for loan deficiency payments
(LDP's) and marketing loan gains. Farm sizes that cause payments
to exceed these limits are illustrated in the following sections.
Then, a definition of a "person" is given. This definition
along with other entity rules comes directly from the Farm Service
Agency (FSA) Fact Sheet "Payment Eligibility and Limitations"
Payment Limit ($40,000)
for direct payments under the 2002 Farm Bill is $40,000 per person.
The limit for Agricultural Marketing and Transition Act (AMTA)
payments under the 1996 Farm Bill also was $40,000 per person.
Because soybeans receive direct payments under the 2002 Farm Bill,
producers generally will receive more direct payments under the
2002 Farm Bill than AMTA payments under the 1996 Farm Bill. Hence,
smaller farm sizes reach the direct payment limit compared to
the AMTA limit.
Table 1 illustrates
the number of acres it takes to reach the $40,000 limit in northern,
central and southern Illinois. The first part of the table shows
acres for a northern Illinois example with program yields of 130
bu. for corn and 38 bu. for soybeans. Given that 75 percent of
the base is in corn acres, 1,495 operator acres will reach the
direct payment limit. An operator acre is an acre the producer
receives revenue from: One acre of owned land equals 1 operator
acre, 1 acre of cash rent land equals 1 operator acre, and 1 acre
of 50-50 share rent land equals .5 operator acres. If corn base
equals 67 percent, operator acres needed to reach the direct payment
limit increases to 1,574 acres.
farms, the direct payment limit is the more restrictive than the
counter-cyclical or LDP limits. Less operator acres are needed
to get to the direct payment limit than the counter-cyclical or
Payment Limit ($65,000)
limitation for counter-cyclical payments is $65,000 per person.
Acres needed to reach this limit will vary from year-to-year because
per bu. payment rates depend on season-average prices (see http://www.farmdoc.uiuc.edu/policy/farmbill02.html
for a discussion of counter-cyclical payments). Table 2 illustrates
the number of acres required to reach the $65,000 limit given
that the per bu. counter-cyclical rates are at their maximum.
More operator acres will be needed to meet the limits than when
rates are lower.
more operator acres are required to reach the limits for counter-cyclical
payments than for direct payments.
Payment Limits ($75,000)
for LDPs and marketing loan gains is $75,000 per person. Like
the 1996 Farm Bill, the 2002 Farm Bill allows for the use of generic
certificates. Receipts from generic certificates do not count
towards the $75,000 limit. Hence, the $75,000 limit should not
limit receipts from the LDP and Marketing Loan programs.
of a Person and Entity Rules
of a "person" is important regarding payment limitation
rules. A "person" may be an individual, a limited liability
partnership, a limited liability company, or an individual participating
as an member of a joint operation or similar operation, a corporation,
a joint stock company, an association, a limited stock company,
a limited partnership, etc., etc. For an individual or entity
to be considered a separate "person", the individual
or entity must have a separate and distinct interest in the land
or crops involved, exercise separate responsibility for this interest,
and maintain funds or accounts separate from that of any other
individual or entity for this interest. The status date for determining
the number of "persons" for payment limitation purposes
is April 1 of the applicable program year.
rules apply for husbands and wives. The general rule is that a
husband and wife are considered one "person" for payment
limitation purposes. However, they may be considered separate
"persons" if they request to be considered separate
"persons" and one of the following applies:
spouse holds, directly or indirectly, a substantial beneficial
interest in more than one entity receiving payment as a separate
"person", and they meet all other requirements to be
considered separate "persons".
-- Both spouses
were separately engaged in unrelated farming operations before
marriage and the farming operations of both spouses have been
maintained as totally separate and distinct farming operations
after their marriage.
regulations exist that provide guidelines for interpretation of
these rules. Questions regarding these rules should be directed
to officials at the local and state FSA offices.
rules were maintained in the 2002 Farm Bill. These rules state
that no individual may receive payments subject to these rules
from more than three entities in which the individual holds substantial
beneficial interest. Individuals who receive payments as an individual
may not also receive payment from more than two entities that
receive payment as a separate "person". A person who
fully utilizes the 3-entity rule doubles the payment limitations
from $180,000 to $360,000.
A new provision
in the 2002 Farm Bill eliminates payments to persons with adjusted
gross income over 2.5 million dollars. This is averaged over three
years. Persons with more than 75 percent of their adjusted gross
income from farming, ranching or forestry operations are excepted
from this rule. The 2.5 million dollar limitation is effective
for 2003 and later program years. Additional rules and regulations
will be forthcoming regarding this and other provisions of the
2002 Farm Bill.
will face problems meeting payment limits. These farms may wish
to reconsider entities involved in their farming operations. It
is too late to make entity changes for the 2002 crop year. However,
changes should be possible for subsequent cropping years.
Issued by: Dale
Lattz and Gary
Schnitkey, Department of Agricultural and Consumer Economics