Is FSA Tightening Rules for Active Personal Management?
Many large family farm operations include both partners that are actively involved in providing labor to the farm operation on a full-time basis and have many family members that provide no active personal labor, but do provide active personal management. If this active personal management is significant, that family member will qualify the farm operation for an additional payment limit (these farm operations have to be a general partnership or joint operation – they can’t be a corporation or limited entity such as an LLC).
But what does active personal management mean? The current FSA handbook has the following definition:
“The contribution of active personal management must be critical to the
profitability of the farming operation, taking into consideration the
person’s or legal entity’s commensurate share in the farming
operation.”
This allows several family members who do not work on the farm to qualify for a payment limit assuming they meet this definition. For example, a larger family farm may have 3 active owners and 6 owners living off the farm that provide active personal management. This allows the farm to qualify for 9 payment limits.
However, the FSA is just now posting an update to Payment Limitations and Payment Eligibility. In the update, they now use the following language regarding significant active personal management:
“For active personal management, includes activities performed by a person,
with a direct or indirect ownership interest in the farming operation or a legal entity, on a regular, continuous, and substantial basis to the farming operation and meets at least one of the following to be considered significant:
(i) Performs at least 25 percent of the total management hours required for the farming operation on an annual basis; or
(ii) Performs at least 500 hours of management annually for the farming
operation.”
As you can see this requires a significantly greater amount of management participation under these rules than the old rules. Simply providing management hours that are critical to the farm operation may no longer be sufficient. It now appears that each family member will be required to maintain a log showing at least 500 hours of active personal management or will need to document that they are providing at least 25% of total management hours. This will be very difficult where a few family members are actively working on the farm.
In our previous example of 3 on-farm and 6 off-farm family members payment limits will likely drop from 9 to 3 or perhaps 4 unless each of the off-farm family members provide at least 500 hours of active personal management hours.
Spouses will continue to qualify for an additional payment limit as long as their spouse is providing significant active personal labor or management.
Is this a tightening or is FSA simply updating the rules to be more consistent. We shall see how this plays out.
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.
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