Why is a GP not an Entity?
We are getting quite a few questions regarding “entity” with the release of Market Facilitation Program (MFP) #2 details.
In round 2 of MFP, farmers are allowed to receive up to $500,000 in payments per entity / per person. It is $250,000 for covered crops (such as corn, wheat, beans, etc.) and then a separate $250,000 limit for livestock (dairy and hogs) and then finally, a separate $250,000 limit for specialty crops (such as nuts, cranberries, sweet cherries, etc.). But in no case can any farmer receive more than $500,000.
Now the rub is that an entity is defined as any entity with “legal protection”. This includes all corporations, limited liability companies and partnerships, limited partnerships, etc. This means that any of these entities will be limited to $500,000 (or $250,000) even if the entity qualifies for $2.5 million and has five owners.
A general partnership or joint venture is not an entity, therefore, these business arrangements have no limits. Let’s look at an example:
ABC Farms, LLC with six equal owners operates a large row crop and sow unit operation. The farm qualifies for $3 million in MFP#2 payments, however, since it is an LLC, it only receives $500,000. If it was a general partnership, it would qualify for all $3 million in payments and then each owner would need to meet the $900,000 adjusted gross income (AGI) limit or have at least 75% of their income from farming.
Remember that this is a per entity / per individual limit. The limit is applied at both the entity and the individual level. With MFP#2, there is now two separate AGI limits. If you are under $900,000, you automatically qualify for the payment. However, if you are over the limit, you qualify if more than 75% of your income is from farming.
The assumption for many individual over the $900,000 AGI limit is that they will qualify since “all” of their income is from farming. However, wages and many other sources of what they might consider to be farming are not “farming income”. If you are in this situation, you likely need to have a CPA prepare the necessary paperwork for FSA to allow a payment to be made.
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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