Farm Programs and Entity Choice
As I sit here writing this post; the United States government is re-opening after a lengthy shutdown. One item that has been somewhat lost in the recent craziness is the expiration of the 2008 Farm Bill on October 1. What comes next is still very much up in the air. It is almost certain that if a new Farm Bill can be passed there will be changes to the various farm programs. With that in mind, it is a good time to be reminded that if you benefit from one of these programs, the requirements should be reviewed when forming a farm business entity. Failure to do so could significantly impact the amount of benefits available.Many farm programs have a per person limitation on the amount of benefits available. For example, the per person limitation for CRP annual rental payment is $50,000. CRP payments made to a general partnership, cannot exceed $50,000 multiplied by the number of persons and legal entities that comprise the ownership of the general partnership reduced by an amount that represents the direct or indirect ownership in the general partnership by any person or legal entity that has reached the maximum limitation. Therefore, if a general partnership has two owners, CRP payments could potentially reach $100,000 per year. However, if the two partners determine to form a Limited Liability Company (LLC), the LLC is treated as a single person and thus payments could not exceed the $50,000 limitation. A potential loss of $50,000 just because of the entity choice! The proper solution would be to form two single member LLCs that are partners in a general partnership. This will provide the desired liability protection without affecting the availability of CRP payments.Every business has its unique issues and farming and ranching is certainly no different. If you benefit from a farm program, remember to consider the impact on that benefit of any entity organization decision.