What Does 2020 or 2021 Mean?
We got the following questions from a reader:
“Is it correct that for crop years 2020 and after that you can include wages and dividends from qualified farm corporations? If so, can these wages and dividends be included in only 2020 calculations of the three year average, or can you include them in the 2018 and 2019 part of the three year average?
For the FSA-510, has the AICPA published a sample letter to attach for the certification?”
Let go ahead and answer the first question. It is true that starting with the 2020 crop year, FSA now allows a farmer to include wages paid by a materially participating farm to be counted as farm income. They also expanded this to include dividends from a farm C corporation and dividends received from an IC-DISC corporation.
A materially participating farm entity is an entity where more than 50% of its gross receipts are from farming. An entity representaive must attest on form CCC-942 that the entity is a qualified farm entity.
Most farm C corporations do not pay dividends but almost all farm C and S corporations do pay wages and it does not matter if these are cash or commodity wages. Dividends from an S corporation are ignored since that “income” is reported directly on Schedule E. IC-DISC dividends are now specifically treated as farm income.
However, the reader’s question about the year is slightly off. These new provisions apply to the 2020 program (or crop year) and this means you get to include these items as part of farm income for the 2020 Farm adjusted gross income (AGI) test (i.e. being more than 75% of overall AGI). This means for 2020, you will count wages or dividend income for 2016, 2017 and 2018 since 2020 AGI is based on a three-year averge for those years. For 2021, you will bump it one year to 2017-2019.
FSA does provide a sample letter that CPAs and Attorneys can use to be included from Form FSA-510. It is located on pages 8-73 and 8-74 of FSA Handbook 6-PL. Remember that as a CPA we should not sign Form FSA-510 but rather complete the letter and include with the form. We should also maintain sufficient documenation to back up our conclusion that the farmer does have farm AGI greater than 75% of overall AGI.
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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