Great News on Section 179 For FSA AGI Purposes
Farmers who enroll in farm programs are subject to average adjusted gross income (AGI) limitations. The 2014 Farm Bill increased this limitation to $900,000 and it is based on a three year average with one year in arrears. For example, for the 2017 crop year, the average will be for 2013-2015. An issue that has arisen with the FSA is that for S corporations and limited liability companies taxed as partnerships that Section 179 was not allowed as a deduction in determining average AGI.
We had voiced our concerns with the FSA and until I was involved with a couple of FSA AGI appeals late last year, we had gotten nowhere. However, in an update to FSA Handbook 5-PL which was just released last week with a January 11, 2017 date (however, I did not see it yesterday on the website), they have updated the handbook to allow full Section 179 for all entities that are allowed to deduct it.
The section dealing with AGI calculations in contained in Section 6 of the handbook. Page 6-21 deal with AGI calculations for entities. Page 6-23 has now been added dealing with how to account for Section 179 which then refers to Exhibit 21 which is in the last part of the handbook. There is 10 pages in Exhibit 21 showing FSA personnel how to account for Section 179 but it does indicate Section 179 is allowed for all crop years beginning with the 2011 crop year.
This means that many farmers who have been notified that they are not eligible for payments due to their AGI being over $900,000 should review those rejections to see if it was based solely on the Section 179 disallowance. If so, they should contact their local FSA office to see how they can get this rejection overturned and get the payments they would be entitled too.
We will try to determine how far back farmers can go to get payments that may have been rejected solely due to Section 179 not being allowed. We will keep you posted.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Good morning Paul, I really enjoy your posts. I am curious if you have any resources available on the workings of a retired farmer. My main concern is the inventory left in the bin. Having all that crop in the bin and having expenses in the coming year…. If you have a moment, I would appreciate your thoughts or ideas on this matter.
My name is Matt and I work at a very small firm in Minnesota. Trying to make some resources available to assist my farmers as they get out of the business of farming.