Monday, June 6, 2022
Next week is the first of two summer ag tax and estate/business planning conferences that Washburn Law School is putting on. Next week’s event on June 13 and 14 will be at the Chula Vista Resort, near the Wisconsin Dells. One of the matters addressed on Day 1 will be issues that have arisen concerning the USDA’s Emergency Relief Program (ERP). I have received numerous questions over the past few weeks concerning the program and we will be addressing them at the conference.
Issues with the ERP – it’s the topic of today’s post.
I won’t go into too much detail about the ERP here because Paul Neiffer and I will do that at the Wisconsin conference. What follows are comments that Paul and I have been providing to those raising questions of us in recent days. Paul has also recently blogged on the issue and with today’s post I will largely summarize and reiterate what he has commented on for the readers of this blog. In addition, there are additional meetings occurring in D.C. this week with IRS which will hopefully result in greater clarification on some presently unclear issues (not covered in this post). If there are additional clarifications, we will discuss those at next week’s event in Wisconsin.
The Extending Government Funding and Delivering Emergency Assistance Act (P.L. 117-43) (Act) was signed into law on September 30, 2021. The Act includes $10 billion for farmers impacted by weather disasters during calendar years 2020 and 2021. $750 million is to be directed to provide assistance to livestock producers for losses incurred due to drought or wildfires in calendar year 2021 (the Emergency Livestock Relief Program – (ELRP)).
To receive a Phase 1 payment, a livestock producer must have suffered grazing losses in a county rated by the U.S. Drought Monitor as having a severe drought) for eight consecutive weeks or at least extreme drought during the 2021 calendar year been approved for the 2021 Livestock Forage Relief Program (LFP). Those who would have normally grazed on federal but couldn’t be due to drought are eligible for a Phase 1 payment if they were approved for a 2021 LFP. Various FSA Forms will need to be submitted.
ELRP Payment Calculation – Phase One
Payments are based on livestock inventories and drought-affected forage acreage or restricted animal units and grazing days due to wildfire reported on Form 2021 CCC-853. A payment will equal the producer’s gross 2021 LFP calculated payment multiplied by 75%, and will be subject to the $125,000 payment limitation.
Crop insurance (or NAP) requirement. In late 2021, the USDA provided some guidance to producers impacted by various weather-related events. The former Wildfire and Hurricane Indemnity Program (WHIP+) was retooled and renamed as the ERP. ERP will have two payments – two phases. Phase 1 is presently underway, and Phase 2 may not happen until 2023. ERP payments may be made to a producer with a crop eligible for crop insurance or noninsurance crop disaster assistance (NAP) that is subject to a qualifying disaster (which is defined broadly) and received a payment. Droughts (a type of qualifying disaster) are rated in accordance with the U.S. Drought Monitor, where the qualifying counties can be found.
To reiterate, an ERP payment will not be made to any producer that didn’t receive a crop insurance or NAP payment in 2020 or 2021. Because of this requirement, crop insurance premiums that an ERP recipient has paid will be reimbursed by recalculating the ERP payment based on the ERP payment rate of 85 percent and then backing out the crop insurance payment based on coverage level.
In addition, the ERP requires that the producer receiving a payment obtain either NAP or crop insurance for the next crop years. Also, a producer that received prevented planting payments can qualify for Phase 1 payments based on elected coverage.
Note: ERP payments are for damages occurring in 2020 and 2021 – so they are not deferable.
Computation of payment and limits. Once a producer submits their data to the FSA, an ERP application will be sent out for the producer to verify. Applications started going out to producers in late May. An ERP payment replaces the producer’s elected crop insurance coverage. It’s based on a percentage with the total indemnity paid using the recalculated ERP percentage with any crop insurance or NAP payment subtracted.
The ERP payment limit is $125,000 for specialty crops. For all other crops, its $125,000 combined. But, for an applicant with average adjusted gross income (AGI) (based on the immediate three prior years but skipping the first year back) that is comprised of more than 75 percent from farming activities, the normally applicable $900,000 AGI limit is dropped, and the payment limit goes to $900,000 for specialty crops and $250,000 for all other crops. There is separate payment limit for each of 2020 and 2021.
Note: If the three-year computation of average AGI shows a loss, the enhanced payment limit is not available even if more than 75 percent of AGI is from farming activities. In addition, the three-year computation is simply the applicant’s net income from farming compared with all of the applicant’s other sources of income as reported on the tax return.
Definition of farm income. Farm income for ERP purposes includes net Schedule F income; pass-through income from farming activities; farm equipment sale gains (if farm income exceeds two-thirds of overall AGI); wages from a farming entity; IC-DISC income from an entity that materially participates in farming (has a majority of gross receipts from farming). Also counting as farm income for ERP purposes is income from packing, storing, processing, transporting and shedding of farm products.
Certification. To get the enhanced payment limit, a CPA or attorney must prepare a letter to be submitted with Form FSA-510 certifying that the applicant’s AGI is over the 75 percent threshold. The FSA has a Form letter than can be used for this that is contained in its Handbook. The FSA 6-PL, Apr. 29, 2022, Para. 489 discusses the 75 percent test and pages 8-73 through 8-74 is where the sample letter is located. The “certification” may allow married farmers to eliminate the off-farm income of a spouse and make it possible to meet the 75 percent test if it otherwise would not be met.
There are many finer details to the ERP as well as the ELRP that I haven’t covered in this post. As I noted above, Paul Neiffer and I will be covering all of your questions at the conference next week in Wisconsin. Also addressed at the conference will be a discussion of what's going on in the economy and U.S. and worldwide markets that are impacting agriculture. If you haven’t registered, the conference is also broadcast live online and there’s still time to register. Here’s the registration link: https://www.washburnlaw.edu/employers/cle/farmandranchtaxjune.html