U.S. Farm Programs: October 30, 2020 Eligibility and Payment Limits Randy Schnepf Under the Agricultural Improvement Act of 2018 (P.L. 115-334, 2018 farm billbil ), U.S. Specialist in Agricultural ), U.S. farm program participants—whether individuals or multiperson legal entities—must Policy meet specific eligibility requirements to receive benefits under certain farm programs. Some requirements are common across most programs, while others are specific to individual Megan Stubbs individual programs. In addition, program participants are subject to annual payment Specialist in Agricultural limits that vary across different combinations of farm programs.

Conservation and Natural Resources Policy Recent ad hoc farm revenue support payment programs, such as the Market Facilitation Programs (MFPs) and the Coronavirus Food Assistance Programs (CFAPs), are authorized outside of omnibus farm bil legislation and include similar, but separate, eligibility requirements and payment limits. Since 1970, Congress has used various policies to address the issue of who should be eligible for farm payments and how much an individual recipient should be permitted to receive in a single year. In recent years, congressional policy has focused on tracking payments through multiperson entities to individual recipients (referred to as direct attribution), ensuring that payments go to persons or entities actively engaged in farming (AEF), capping the amount of payments that a qualifying recipient may receive in any one year, and excluding farmers or farming entities with large average incomes from payment eligibility.

Every participating person or legal entity that participates in a farm program must submit identification information. Other eligibility requirements—which may vary across programs—include U.S. citizenship; the nature and extent of an individual's ’s participation (i.e., AEF criteria), including ownership interests in multiperson entities and personal time commitments (whether as labor or management); means testing (persons with combined farm and nonfarm adjusted gross income [AGI] in excess of $900,000 are ineligible for most program benefits); and conservation compliance requirements. For example, under the FY2019 Additional Supplemental Appropriations for Disaster Relief Act (P.L. 116-20), the AGI requirement as it applies to payments under the Market Facilitation Program2018 MFP may be waived if at least 75% of AGI is from farming, ranching, or forestry-related activities.

This same AGI flexibility has been extended to the 2019 MFP and 2020 CFAP programs. In general, foreign persons (or foreign legal entities) are eligible to participate in farm programs if they meet the eligibility eligibility requirements. Exceptions are the four permanent disaster assistance programs created under the 2014 farm bill ( farm bil (P.L. 113-79) and the Noninsured Crop Disaster Assistance program (NAP), which exclude nonresident aliens.

Current law requires tracking payments through four levels of ownership in multiperson legal entities to the individual individual recipients. Current payment limits include a cumulative limit of $125,000 for all al covered commodities under the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) support programs, with the exception of peanuts, which has its own additional $125,000 limit. Only oneTwo permanent disaster assistance program—programs are subject to payment limits: the Livestock Forage Disaster Program (LFP)— is subject to a payment limit ($125,000 per crop year).; and NAP is also subject to a $125,000 per crop year limit per person for catastrophic coverage. Most current conservation programs include some limit on the amount of funding a participant may receive, but these limits vary by program. Some conservation programs have multiple limits that vary based on activity or practice implemented. Congress addresses program eligibility and payment limit issues in periodic farm legislation. The 2018 farm bil extended the definition of family member to include first cousins, nieces, and nephews. Under an August 24, 2020, rule (85 Federal Register 52033), USDA has specified that every adult member (18 years or older)— Congressional Research Service U.S. Farm Programs: Eligibility and Payment Limits whether a member of a family farm operation or a joint venture—must meet the AEF requirements to becoverage.

Family farms receive special treatment with respect to payment limits—every adult member (18 years or older) is deemed to meet the AEF requirements and is potentially eligible to receive farm program payments in an amount up to the individual payment limit. Furthermore, the 2018 farm bill extended the definition of family member to include first cousins, nieces, and nephews. Thus, a family farm with a single active farm operator may still payment limit. A notable exception to this rule is spouses of individuals that meet the AEF criteria are themselves also deemed to meet AEF criteria and be eligible for a separate payment limit. Thus, a family farm may stil qualify for multiple payment limits based on the number of immediate and extended adult family members. Congress addresses program eligibility and payment limit issues in periodic farm legislation.

(and spouses) that meet the AEF criteria. Supporters of payment limits contend that large payments facilitate consolidation of farms into larger units, raise the price of land, and put smallersmal er, family-sized farming operations and beginning farmers at a disadvantage. In addition, they argue that large payments undermine public support for farm subsidies and are costly. Critics of payment limits counter that all al farms need support, especiallyespecial y when market prices decline, and that larger farms should not be penalized for the economies of size and efficiencies they have achieved. Further, critics argue that farm payments help U.S. agriculture compete in global markets and that income testing is at odds with federal farm policies directed toward improving U.S. agriculture and its competitiveness. Congress may continue to address these issues, as well wel as related questions, such as: How does the current policy design of payment limits relate to their distributional impact on crops, regions, and farm size? Is there an optimal aggregation of payment limits across commodities or programs? Do unlimited benefits under the Marketing Assistance Loan (MAL) program reduce the effectiveness of overall overal payment limits? Congressional Research Service link to page 7 link to page 7 link to page 8 link to page 9 link to page 9 link to page 10 link to page 11 link to page 11 link to page 12 link to page 13 link to page 13 link to page 14 link to page 14 link to page 15 link to page 16 link to page 16 link to page 17 link to page 18 link to page 18 link to page 18 link to page 19 link to page 20 link to page 21 link to page 21 link to page 22 link to page 23 link to page 23 link to page 23 link to page 24 link to page 25 link to page 26 link to page 26 link to page 27 link to page 28 link to page 28 link to page 29 link to page 29 link to page 30 link to page 30 link to page 30 link to page 31 link to page 11 U.S. Farm Programs: Eligibility and Payment Limits Contents Introduction ................................................................................................................... 2 Report Overview ....................................................................................................... 2 Background .............................................................................................................. 3 Program Eligibility.......................................................................................................... 4 Participant Identification............................................................................................. 4 Three Principal Farm Business Categories ..................................................................... 5 Actively Engaged in Farming (AEF) Requirement .......................................................... 6 “Significant Contribution” Defined ......................................................................... 6 Individual AEF Requirements ................................................................................ 7 Partnership AEF Requirements ............................................................................... 8 Corporate AEF Requirements ................................................................................. 8 Special Nonfamily AEF Requirements..................................................................... 9 Foreign Person or Legal Entity .................................................................................... 9 AGI Limit .............................................................................................................. 10 AGI Defined...................................................................................................... 11 Historical Development of the AGI Eligibility Limit ................................................ 11 Conservation Compliance ......................................................................................... 12 Ad Hoc Farm Revenue Support Program Eligibility Criteria .......................................... 13 2018 MFP and 2019 MFP Eligibility ..................................................................... 13 CFAP-1 and CFAP-2 Eligibility............................................................................ 13 Direct Attribution of Payments ........................................................................................ 14 Payment Limits............................................................................................................. 15 Farm Support Programs Subject to Annual Payment Limits............................................ 16 Farm Bill Support Programs................................................................................. 16 Ad Hoc Farm Revenue Support Programs .............................................................. 17 Special Treatment of Family Farms ....................................................................... 18 Multiple Payment Limits for a Partnership ............................................................. 18 Single Payment Limit for a Corporation................................................................. 18 Supplemental Assistance Programs Subject to Payment Limits ....................................... 19 Conservation Programs Subject to Payment Limits ....................................................... 20 Exceptions That Avoid Payment Limits ....................................................................... 21 Selected Farm Programs Without Payment Limits ................................................... 21 Death of a Principal Operator ............................................................................... 22 Issues for Congress ....................................................................................................... 23 Payment Limits and Market Signals ........................................................................... 23 Distributional Impacts on Farm Size ........................................................................... 24 Potential Crop and Regional Effects of Tighter Payment Limits ...................................... 24 Separate Payment Limit for Peanuts ........................................................................... 25 No Payment Limit on MAL Benefits .......................................................................... 25 Policy Design Considerations .................................................................................... 25 AGI Limit Concerns: On- versus Off-Farm Income ...................................................... 26 Tables Table 1. U.S. Farms by Legal Status for Tax Purposes, 2017 .................................................. 6 Congressional Research Service link to page 12 link to page 25 link to page 33 link to page 36 link to page 38 link to page 33 link to page 41 U.S. Farm Programs: Eligibility and Payment Limits Table 2. Significant Contribution of Active Personal Labor or Management ............................. 7 Table 3. Wildfires and Hurricanes Indemnity Program Payment Limits.................................. 20 Table A-1. U.S. Farm Program Eligibility Requirements and Payment Limitations .................. 28 Table A-2. History of Adjusted Gross Income (AGI) Eligibility Limits for Programs ............... 31 Table A-3. History of Annual Payment Limits for U.S. Farm Commodity Programs ................ 33 Appendixes Appendix A. Supplementary Tables ................................................................................. 28 Contacts Author Information ....................................................................................................... 36 Congressional Research Service U.S. Farm Programs: Eligibility and Payment Limits Table of Acronyms AEF Actively Engaged in Farming AGI Adjusted Gross Income ARC Agricultural Risk Coverage program CBO Congressional Budget Office CCC Commodity Credit Corporation CCP Countercyclical Payment CFAP Coronavirus Food Assistance Program CGCS Cotton Ginning Cost Share program CRP Conservation Reserve Program CSP Conservation Stewardship Program DMC Dairy Margin Coverage (replaced the 2014 farm bil ’s Margin Protection Plan or MPP) EIN Employee Identification Number ELAP Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish Program EQIP Environmental Quality Incentives Program ERS Economic Research Service of USDA EWP Emergency Watershed Protection Program FSA Farm Service Agency of USDA IRS Internal Revenue Service LDP Loan Deficiency Payment LIP Livestock Indemnity Program LFP Livestock Forage Disaster Program MAL Marketing Assistance Loan Program MFP Market Facilitation Program MLG Marketing Loan Gain MPP Margin Protection Program NAP Noninsured Crop Disaster payment limits?

Introduction

Program eligibility requirements and payment limits are central to how various U.S. farm programs operate. These requirements fundamentallyfundamental y address various equity concerns and reflect the goals of government intervention in agriculture. They determine who receives federal farm program payments and how much they receive.

Eligibility Eligibility requirements and payment limits are controversial because they influence what size farms are supported.¹2 Policymakers have debated what limit is optimal for annual payments, whether payments should be proportional to production or limited per individual or per farm operation, and whether the limit should be specific to each program or cumulative across all al programs. Furthermore, program eligibility requirements and payment limits generate considerable congressional interest because their effects differ across regions and by type of commodities produced and because a substantial amount of annual U.S. farm program²program3 payments are at stake: Directdirect federal outlays have averaged $13.7 billion 14.1 bil ion per year from 1996 through 2018.³ 2019.4 When federal crop insurance premium subsidies⁴subsidies5 are included, annual farm payments have averaged $17.6 billion 18.1 bil ion over the same period.

Report Overview⁵

Overview6 This report discusses various eligibility factors and their interaction with current farm programs, including those authorized under the 2018 farm bill as well bil ,7 as wel as several disaster assistance and other ad hoc payment programs initiated under different authorities.⁶8 It describes current 1 CRS In Focus IF11163, 2018 Farm Bill Primer: The Farm Safety Net. 2 USDA, Office of the Chief Economist, Report of the Commission on the Application of Payment Limitations for Agriculture, Subm itted in Response to Section 1605, Farm Security and Rural Investm ent Act of 2002 , August 2003. 3 T he term federal farm programs generally refers to a suite of commodity support and disaster assistance programs administered by USDA. Many such programs are authorized in omnibus farm bills, including most recently the 2018 farm bill (P.L. 115-334), and are listed in Table A-1. Most conservation programs authorized in farm bills also include payment limits and eligibility requirements. However, they are not discussed in detail in this report. 4 USDA, Economic Research Service (ERS), federal government direct farm program payments, data as of September 2, 2020, http://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics.aspx. 5 Federal crop insurance subsidies include premium subsidies, delivery cost payments, and shared underwriting risks. USDA, Risk Management Agency, Summary of Business database, http://www.rma.usda.gov; and Congressional Budget Office (CBO), annual baseline for farm programs, various years. 6 T his is the second of two reports on the subject of program eligibility and payment limits. While this report focuses on farm program payment limits, an earlier report (CRS Report R44656, USDA’s Actively Engaged in Farm ing (AEF) Requirem ent) focuses on program eligibility requirements—in particular, criteria underpinning the AEF requirements. 7 As specified by USDA’s final rule to implement the mandatory changes required by the 2018 farm bill; USDA, “Payment Limitation and Payment Eligibility,” Final Rule, 85 Federal Register 52033, August 24, 2020. 8 For example, the 2018 and 2019 Market Facilitation Programs (as described later in this report) were initiated by the Congressional Research Service 2 link to page 33 link to page 36 link to page 38 link to page 33 link to page 33 U.S. Farm Programs: Eligibility and Payment Limits It describes current restrictions that limit or preclude payments to farmers based on a number of factors as well as areaswel as those circumstances where few, if any, restrictions limit farmers'’ access to such benefits or to the amount of benefits.

Much of the information on farm programs and their eligibility criteria and payment limits is summarized inin Table A-1. A second appendix table, Table A-2, provides a brief history of the legislative legislative evolution of the income eligibility thresholds—that is, means testing. A final appendix table, Table A-3, contains a history of the legislative evolution of annual payment limits for major commodity programs. This report concludes with a discussion of several issues related to farm program payment limits, including policy design issues, that may be of interest to Congress.

Background

Background Farm program payment limits and eligibility requirements may differ by both type of program and type of participating legal entity (e.g., an individual, a partnership, or a corporation). The Farm Service Agency (FSA) has administrative responsibility for collecting and maintaining data used to make eligibility and payment limit determinations for U.S. Department of Agriculture (USDA) farm programs. FSA provides this data to the Natural Resources Conservation Service (NRCS) to administer conservation programs for which they have responsibility.⁷

9 Congress first added payment limits as part of farm commodity programs in the 1970 farm bill bil (P.L. 91-524). However, such limits have evolved over time in both scope and amount (Table A- 1) as the structure of U.S. agriculture, farm policies, and commodity support programs has changed.⁸10 With each succeeding farm bill, and occasionallybil , and occasional y via other legislation, Congress has addressed anew who is eligible for farm payments and how much an individual recipient should be permitted to receive in a single year.

In recent years, congressional debate has focused on

•  attributing payments directly to individual recipients,
•  ensuring that payments go to persons or entities currently engaged in farming,
•  capping the amount of payments that a qualifying recipient may receive in any one year, and
•  excluding farmers or farming entities with incomes above a certain level—as measured by their adjusted gross income (AGI)—from payment eligibility.

Each of these policy measures—depending on how they are designed and implemented—can have consequences, both intended and unintended, for U.S. agriculture. These consequences include, but are not limited to, farm management structure, crop choices, and farm size. Because U.S. farm program eligibility requirements and annual payment limit policy have such broad potential consequences for U.S. agriculture, a review of both current policies and related issues is of potential interest to Congress.

Program Eligibility

Not all Administration using Section 5 of the Commodity Credit Corporation (CCC) Charter Act (15 U.S.C. §714c). 9 Conservation programs have different eligibility requirements from the commodity support programs. Many eligibility requirements are tied to the condition and control of the land and less to activities of those involved in an operation. However, some requirements and data relating to eligibility are similar between the two types of programs and are coordinated between NRCS and FSA. 10 FSA, “Legislative History of Payment Eligibility and Payment Limitation Provisions,” FSA Handbook, Payment Eligibility, Paym ent Lim itation, and Average Adjusted Gross Incom e—Agricultural Act of 2014, as of February 10, 2016 (hereinafter FSA Handbook). Congressional Research Service 3 U.S. Farm Programs: Eligibility and Payment Limits Program Eligibility Not al farm businesses are eligible to participate in federal farm programs. A number of statutory and regulatory requirements govern federal farm program eligibility for benefits under various programs. Some farm businesses, although eligible to participate, are restricted from receiving certain benefits or may be limited in the extent of program payments that they may receive.

Over time, program eligibility rules have evolved, expanding to more programs and including more limitations. Cross-cutting methods ofacross programs for determining program eligibility—such as AGI thresholds—are relatively new.⁹11 Discussed below are cross-cutting eligibility requirements that affect multiple programs, including participant identification, foreign ownership, nature and extent of participation (i.e., actively engaged in farming or AEF criteria), means tests, and conservation compliance requirements. Recent ad hoc programs developed by USDA include some of these eligibility requirements, but also variations that al ow for expanded participation and payments. Participant Identification General yrequirements.

Participant Identification

Generally, program eligibility begins with identification of participants. Identifying who or what entity is participating and therefore how payments may be attributed is the cornerstone of most farm program eligibility requirements. To be eligible to receive any farm program payment, every person or legal entity—including both U.S. citizens and noncitizens—must provide a name and address and have either a Social Security number (SSN), in the case of a person, or a Taxpayer Identification Number (TIN) or Employee Identification Number (EIN), in the case of a legal entity with multiple persons having ownership interests. In this latter situation, each person with an interest must have a TIN or EIN and must declare his or her interest share in the joint entity using the requisite USDA forms.¹⁰

All 12 Al participants in programs subject to payment eligibility and payment limitation requirements must submit to USDA two completed forms.¹¹13 The first, CCC-901¹²90114 (Members'’ Information), identifies the participating persons and/or entities (through four levels of attribution if needed) and their interest share in the operation. The second form, CCC-902 (Farm Operating Plan), identifies the nature of each person'’s or entity'’s stake—that is, capital, land, equipment, active personal labor, or active personal management—in the operation.¹³15 These forms need to be submitted only once (not annuallyannual y) but must be kept current in regard to any change in the farming operation. Critical changes to a farming operation might include expanding the number of limitations for payment, such as by adding a new family member, changing the land rental 11 For example, means testing (i.e., AGI requirements) was first introduced in the Food Security and Rural Investment Act of 2002 (P.L. 107-171). 12 T his requirement may be different for American Indians, Alaska Natives, and Pacific Islanders in which a unique identification number for each individual may be used as an alternative to a T IN or SSN. 13 Some program eligibility requirements (e.g., AEF) are not required for conservation and disaster assistance programs. T herefore some forms required for commodity support programs are not required for participation in others. All required forms for participation in any USDA farm program are provided through a producer’s local USDA Service Center. See https://offices.sc.egov.usda.gov/locator/app. 14 T he CCC abbreviation is USDA’s Commodity Credit Corporation. For additional information, see CRS Report R44606, The Com m odity Credit Corporation: In Brief. 15 FSA Handbook, paragraph 44, p. 2-59. All forms are available at the local USDA county office or online at http://www.sc.egov.usda.gov. Congressional Research Service 4 link to page 11 link to page 11 U.S. Farm Programs: Eligibility and Payment Limits of limitations for payment, such as by adding a new family member, changing the land rental status from cash to share basis, purchasing additional base acres¹⁴acres16 equivalent to at least 20% of the previous base, or substantiallysubstantial y altering the interest share of capital or equipment contributed to the farm operation. This information is critical in determining the extent to which each person is actively engaged in the farming operation, as described below.

Three Principal Farm Business Categories

Many types of farm business entities own operations engaged in agricultural production. For purposes of determining the extent to which the participants of a farm operation qualify as potential farm program participants, three major categories are consideredconsidered (Table 1):¹⁵

• 1. 17 1. Sole proprietorship or family farm. The farm business is run by a single operator or multiple adult family members—the linkage being common family lineage relationship—whereby each qualifying member is subject to an individual payment limit. Thus, a family farm potentiallypotential y qualifies for an additional payment limit for each family member (18 years or older) associated with the principal operator.18 Family farms or sole proprietorships comprised nearly 86% of U.S. farm operations in 2017.
• 2. 2. Joint operation. Each member of a joint operation—where members need not have a common family relation or lineage—is treated separately and individually individual y for purposes of determining eligibility and payment limits. Thus, a partnership's ’s potential payment limit is equal to the number of qualifying members (plus any special designees such as spouses) times the individual payment limit.
• 3. 3. Corporation. A legally legal y defined association of joint owners or shareholders that is treated as a single person for purposes of determining eligibility and payment limits.19 This includes corporations, limited liability companies, and similar entities. Nearly 90% of incorporated farm operations are family held.20 As of 2017, these three categories represented nearly 98% of U.S. farm operations (Table 1). In addition, federal regulations exist for evaluating both the eligibility of and relevant payment limits for other exceptional types of potential recipients, including a spouse, minor children, and other family members, as wel as marketing cooperatives, trusts and estates, cash-rent tenants, sharecroppers, landowners, federal agencies, and state and local governments.21 These institutional arrangements represent a smal share (2.2%) of U.S. farm operations, according to 16 For the purpose of calculating program payments, the term base acres is the historical planted acreage on each farm within the USDA program system using a multiyear average from as far back as the 1980s. Base acre provisions since 1981 are described in Edwin Young et al., Econom ic Analysis of Base Acre and Paym ent Yield Designations Under the 2002 U.S. Farm Act, ERS, September 2005, pp. 36-41. 17 T hese three principal business categories, as they relate to farm program eligibility, are discussed in more detail in CRS Report R44656, USDA’s Actively Engaged in Farm ing (AEF) Requirem ent. 18 T he spouse of the principal operator qualifies automatically for an additional payment limit, but all other adult family members must meet AEF criteria described later in this report in order to be eligible for USDA farm program payments. 19 Because the company shields its owners from liability (or risk), the company is given a single payment limit regardless of the number of owners. 20 USDA, National Agricultural Statistics Service, 2017 Census of Agriculture, T able 74, April 11, 2019. 21 For a discussion of the eligibility of sharecroppers, estates and trusts, deceased and incapacitated persons, military personnel, and other exceptional circumstances, see the discussion under 7 C.F.R. §1400, “Subpart C—Payment Eligibility.” Congressional Research Service 5 link to page 11 link to page 11 link to page 11 U.S. Farm Programs: Eligibility and Payment Limits USDA’s 2017 Census of Agriculture. Special rules also describe eligibility and payment limits in the event of the death of a previously eligible person. Table 1. U.S. Farms by Legal Status for Tax Purposes, 2017 Farms Production Valuea USDA Payments Farm Type Number % $ Billions Share # Farmsb $ Billions Sole proprietor entities. Nearly 90% of incorporated farm operations are family held.¹⁶

As of 2017, these three categories represented nearly 98% of U.S. farm operations (Table 1). In addition, federal regulations exist for evaluating both the eligibility of and relevant payment limits for other exceptional types of potential recipients, including a spouse, minor children, and other family members, as well as marketing cooperatives, trusts and estates, cash-rent tenants, sharecroppers, landowners, federal agencies, and state and local governments.¹⁷ These institutional arrangements represent a small share (2.2%) of U.S. farm operations, according to USDA's 2017 Census of Agriculture. Special rules also describe eligibility and payment limits in the event of the death of a previously eligible person.

AEF Requirement

Individual AEF Requirements

Individual AEF Requirements An individual producer must meet three AEF criteria:

• 1. 1. The person, independently and separately, makes a significant contribution to the farming operation of both (a) capital, equipment, or land; and (b) active personal labor, active personal management, or a combination of active personal labor and management.
• 2. 2. The person'’s share of profits or losses is commensurate with his/her contribution to the farming operation.
• 3. The person shares in the risk of loss from the farming operation.

In general, family farms receive Congressional Research Service 7 U.S. Farm Programs: Eligibility and Payment Limits 3. The person makes contributions to the farming operation that are at risk of loss, with the level of risk commensurate with the person’s claimed share of the operation. Prior to the issuance of the USDA rule on payment limits and eligibility of August 24, 2020, family farms received special treatment whereby every adult member (i.e., 18 years or older) is was deemed to meet the AEF requirements. FamilyAt that time, family membership iswas based on lineal ascendants or descendants but iswas also extended to siblings and spouses. Furthermore, underUnder the 2018 farm bill bil (§1703), for purposes of assessing the availability of individual payment limits, the definition of family member has been extended to include first cousins, nieces, and nephews.

Current law also allows However, under the August 24 rule, each of these individuals (with the exception of spouses, see below) is no longer “deemed” to meet AEF criteria but must now certify that they meet each of the three AEF criteria cited above, including the conditions identified under the more strictly defined term “significant contribution.”25 Current law also al ows for special treatment of a spouse: If one spouse is determined to be actively engaged in farming, then the other spouse shall shal also be determined to have met the requirement.¹⁹26 The spousal exception applies to both individual producers (as in a family farm) and producers operating within a partnership.

An additional exception is made for landowners who may be deemed in compliance with all al AEF requirements if they receive income based on the farm'’s operating results without providing labor or management.²⁰

27 Partnership AEF Requirements

In a general partnership, each member is treated separately for purposes of meeting the AEF criteria and determining eligibility. In particular, each partner with an ownership interest must contribute active personal labor and/or active personal management to the farming operation on a regular basis. The contribution must be identifiable, documentable, separate,satisfy al three of the AEF criteria for an individual, including the “significant contribution” specificity cited above. The active personal labor or management contribution must be (a) performed on a regular basis; (b) identifiable and documentable; and (c) separate and distinct from thesuch contributions made by any other partner. Each partner who fails to meet the AEF criteria is ineligible to participate in the relevant farm program.

Corporate AEF Requirements

A corporation, as an association of joint owners, is treated as a single person for purposes of meeting the AEF criteria and determining eligibility. 28 In addition to the AEF criteria cited for a person—of sharing commensurate profits or losses and bearing commensurate risk—each member with an ownership interest in the corporation must make a significant contribution of personal labor or active personal management—whether compensated or not—to the operation that is (a) performed on a regular basis,; (b) identifiable and documentable,; and (c) separate and distinct from such contributions of other stockholders or members. Furthermore, the collective contribution of corporate members must be significant and commensurate with contributions to the farming operation.

25 7 C.F.R. §1400.3 Definitions, “Significant Contribution.” 26 7 U.S.C. §1308-1(c)(6) and 7 C.F.R. §1400.202(b). 27 7 C.F.R. §1400.207. See also, FSA Handbook, “Landowner Exemption,” p. 2-158. 28 As mentioned earlier, because a corporation shields its owners from liability (or risk), the company is given a single payment limit regardless of the number of owners. Congressional Research Service 8 U.S. Farm Programs: Eligibility and Payment Limits If any member of the legal entity fails to meet the labor or management contribution requirements, then any program payment or benefit to the corporation will wil be reduced by an amount commensurate with the ownership share of that member. An exception applies if (a) at least 50% of the entity'’s stock is held by members that are "“actively engaged in providing labor or management"” and (b) the total annual farm program payments received collectively by the stockholders or members of the entity are equal to or less than one payment limitation.

Special Nonfamily AEF Requirements

Prior to the 2014 farm bill (bil (P.L. 113-79), the definition of active personal labor or management was broad and could be satisfied by undertaking passive activities without visiting the operation, thus enabling individuals who lived significant distances from an operation to claim such labor or management contributions.²¹29 This was often seen as problematic, as passive investors were receiving farm program payments without actively contributing to the farming operation.

Recent farm billsbil s have amended the AEF criteria in an attempt to tighten the requirements. However, the issue remains controversial. In particular, the 2014 farm bill bil (§1604) required USDA to add more specificity to the role that a nonfamily producer must play to qualify for farm program benefits.²²30 These AEF regulations were not changed under the 2018 farm bill.

bil . As a result of the rule, a limit of three is placed on the number of nonfamily members of a farming operation who can qualify as a farm manager—depending on the size and complexity of the farm operation.31 Also, additional recordkeeping requirements now apply for each nonfamily member of a farming operation claiming active personal management status. No such limit applies to the potential number of qualifying family members.

32 Foreign Person or Legal Entity

Generally General y, foreign persons (or foreign legal entities) are eligible to participate if they meet a particular farm program'’s eligibility requirements.²³33 Exceptions include the four permanent disaster assistance programs—Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish Program (ELAP); Livestock Forage Disaster Program (LFP); Livestock Indemnity Program (LIP); and Tree Assistance Program (TAP)—and the Noninsured Crop Disaster Assistance Program (NAP), which explicitly prohibit payments to foreign entities other than resident aliens.²⁴

As of December 31, 2018, foreign persons held an interest in 31.8 million34 29 U.S. Government Accountability Office (GAO), Changes Are Needed to Eligibility Requirements for Being Actively Involved in Farm ing, GAO-13-781, September 2013, http://www.gao.gov/assets/660/658208.pdf. 30 CCC, “Payment Limitation and Payment Eligibility; Actively Engaged in Farming,” 80 Federal Register 78119, December 16, 2015. For more on this rule, see CRS Report R44656, USDA’s Actively Engaged in Farm ing (AEF) Requirem ent. 31 7 C.F.R. §1400.602 “ Restrictions on active personal management contributions.” 32 However, an indirect limit of four farm managers is in effect for smaller farm operations under the requirement that a manager must account for at least 25% of a farm operation’s total management hours. In contrast, a large farm operation could conceivably have more than four managers who log at least 500 hours of management time. 33 Verifiable physical, on-farm presence is critical in a successful determination for eligibility for nonresident aliens. 34 7 U.S.C. §9081(a)(2)(B). Congressional Research Service 9 link to page 36 link to page 20 link to page 33 U.S. Farm Programs: Eligibility and Payment Limits As of December 31, 2018, foreign persons held an interest in 31.8 mil ion acres of U.S. agricultural land (including forest land).²⁵35 This accounts for 2.5% of all al privately held agricultural land in the United States and approximately 1% of total U.S. land.

Foreign persons or entities can become eligible for most farm program benefits if they have the requisite U.S. taxpayer ID and meet the AEF criteria discussed earlier. In the case where a foreign corporation or similar entity fails to meet the AEF criteria but has shareholders or partners with U.S. residency status, then the foreign entity may—upon written request to USDA—receive payments representative of the percentage ownership interest by those U.S. citizens or U.S. resident aliens that do meet the AEF criteria.

Current law imposes no specific restrictions on foreign persons or entities with respect to eligibility eligibility for crop and livestock insurance premium subsidies. Also, the Dairy Margin Coverage (DMC) program makes no distinction about producer or owner citizenship. Instead, the law states that all al dairy operations in the United States shall shal be eligible to participate in the DMC program to receive margin protection payments.²⁷37 Similarly, no citizenship requirement exists for a sugar processor or a cane or beet producer operating under the U.S. sugar program price guarantees. However, the sugarcane and sugar beets being processed must be of U.S. origin.

AGI Limit

Generally General y, means testing prohibits persons or legal entities from being eligible to receive any benefit under certain commodity and conservation programs during a crop, fiscal, or program year as appropriate if their income is above an established level. The first means test for farm programs was established by the 2002 farm bill (bil (P.L. 107-171). Income is measured by an individual'individual’s or entity'’s average AGI from the previous three-year period but excluding the most recent complete taxable year.²⁸38 A brief history of the legislative evolution of the AGI threshold is provided in Table A-2.

Means testing has recently been applied as a determining factor for the level of payment limit rather than a threshold for eligibility. Supplemental disaster assistance authorized in 2018 and 2019 uses an individual'’s or entity'’s average AGI over a three-year period to determine the total payment limits depending on how much of that income is derived from farming.²⁹39 This is discussed further in the "“Payment Limits" ” section below.

Recent farm bills, including the 2018 farm bill 35 T ricia Barnes et al., Foreign Holdings of U.S. Agricultural Land through December 31, 2018 , FSA, December 31, 2018. 36 7 U.S.C. §1308-3. 37 7 U.S.C. §9054(a). 38 For example, the AGI for the 2016 crop year is based on the AGI base years of 2012, 2013, and 2014, excluding the most recently completed tax year of 2015. Those tax years where the person or legal entity had no taxable income are excluded from the calculation of the AGI average. 39 T he three-year period for calculation varies by program. See 2017 WHIP and WHIP+ entry and note in Table A-1. Congressional Research Service 10 link to page 11 link to page 36 U.S. Farm Programs: Eligibility and Payment Limits Recent farm bil s, including the 2018 farm bil , have preserved the three-year average AGI as the relevant measure of income. Now that an AGI limit appears acceptableGiven apparent agreement on the concept of an AGI limit, the debate has shifted to which programs are covered by the means test and what income level is an appropriate threshold.

AGI Defined

Since most U.S. farms are operated as sole proprietorships or partnerships (Table 1), most farm households are taxed under the individual income tax rather than the corporate income tax.³⁰40 For an individual, AGI is the Internal Revenue Service (IRS) reported AGI. AGI measures net income—that is, income after expenses. Farm income is reported on the IRS Schedule F where AGI is net of farm operating expenses. For an incorporated business, a comparable measure to AGI—as determined by USDA—is used to measure income.

Since the household is the typical unit of taxation, farm and nonfarm income are combined when computing federal income taxes for farm households. In fact, most federal income tax paid by farm households (80% in 2019) can be attributed to nonfarm income.³¹

41 Farm operations overwhelmingly report operating losses for tax purposes. For example, in 2015, two-thirds of farm sole proprietors reported a net farm loss for tax purposes.³²42 The substantial portion of capital investment that can be expensed in the first year is an important determinant of the large loss reporting, along with cash accounting and other practices.

Program participants are required to give their consent to the IRS annuallyannual y to verify that they are in compliance with their AGI limit provisions using a specific USDA form (CCC-941).³³43 Failure to provide the consent and subsequent certification of compliance results in ineligibility for program payments and a required refund of any payments already received for the relevant year.

Historical Development of the AGI Eligibility Limit

The 2002 farm bill bil (§1604) established the initial AGI threshold for program eligibility at $2.5 million mil ion. This AGI criterion applied to most farm programs (listed inin Table A-2). However, the 2002 farm bill bil included an exemption if at least 75% of AGI was from farming.

The 2008 farm bill bil (§1604) replaced the single AGI limit of the 2002 farm bill bil with three separate AGI limits that distinguished between farm and nonfarm AGI:

• 1. 1. First, a nonfarm AGI limit of $500,000 applied to eligibility for selected farm commodity program benefits, including the Milk Income Loss Contract program,³⁴44 NAP, and the disaster assistance programs.
• 2. Second, a farm-specific AGI limit of $750,000 applied to eligibility for direct payments.
• 3. Third, a nonfarm AGI limit of $1 million—but 40 USDA estimates that 98% of farm households are pass-through entities (including sole proprietorships, partnerships, and Subchapter S corporations)—any profit or loss from them is passed to the owner/partner/shareholder, and tax is paid at the individual rather than the corporate level. James Williamson and Siraj Bawa, Estim ated Effects of the Tax Cuts and Jobs Act on Farm s and Farm Households, ERS, June 2018, p. 3. 41 ERS, “2020 Farm Sector Income Forecast,” February 5, 2020 . 42 Williamson and Bawa, Estimated Effects of the Tax Cuts and Jobs Act on Farms and Farm Households, p. 4. 43 T hus, a participant completes form CCC-941 for USDA. USDA then submits the forms to IRS for processing. IRS in turn notifies USDA of each participant’s compliance status regarding the AGI limit. Producers who fail to comply will be given written notice by USDA and have a 30 -day window to challenge their noncompliance status. A subsequent appeal process is available for producers deemed out of compliance following the initia l challenge. 44 T he 2014 farm bill (§1422) eliminated this program. Congressional Research Service 11 U.S. Farm Programs: Eligibility and Payment Limits 2. Second, a farm-specific AGI limit of $750,000 applied to eligibility for direct payments. 3. Third, a nonfarm AGI limit of $1 mil ion—but subject to an exclusion if 66.6% subject to an exclusion if 66.6% of total AGI was farm-related income—applied to eligibility for benefits under conservation programs.

However, the AGI limit could be waived in its entirety on a case-by-case basis if implementing a particular conservation program would protect environmentallyenvironmental y sensitive land of special significance.³⁵ significance.45 The 2008 farm bill bil also added a provision for married individuals filing a joint tax return whereby the joint AGI could be allocatedal ocated as if a separate return had been filed by each spouse. This would potentially allowpotential y al ow the farmer to exclude any earned income from a spouse as well wel as a share of any unearned income from jointly held assets for purposes of the eligibility cap.³⁶46 This provision had the potential to significantly reduce the share of farms affected by the AGI cap.

The 2014 farm bill bil (§1605) returned the eligibility threshold to a single total AGI limit but at a level of $900,000 for individuals and incorporated businesses.³⁷47 It also retained the provision for married individuals filing a joint tax return to allocateal ocate the AGI as if a separate return had been filed by each spouse. In the case of a payment to a general partnership or joint venture comprising multiple individuals, the payment would be reduced by an amount that is commensurate with the share of ownership interest of each person who has an average AGI in excess of $900,000. The 2018 farm bill bil retained the AGI provisions from the 2014 farm bill bil but added the 2008 farm bill's bil ’s case-by-case waiver for conservation programs that would protect environmentallyenvironmental y sensitive land of special significance.48 Conservation Compliance Two provisions—highly erodible land conservation (Sodbuster) and wetland conservation (Swampbuster)—are collectively referred to as conservation compliance.49 To be eligible for certain USDA program benefits, a producer agrees to conservation compliance—that is, to maintain a minimum level of conservation on highly erodible land and not to convert or make production possible on wetlands. Conservation compliance has been in effect since the 1985 farm bil (P.L. 99-198). The majority of farm program payments, loans, disaster assistance, and conservation programs are benefits that may be lost if a participant is out of compliance with the conservation requirements. The 2014 farm bil extended conservation compliance to federal crop insurance premium subsidies, and the 2018 farm bil retains this compliance requirement.50 Most recently, the 2018 farm bil made relatively minor amendments to the compliance provisions. Within U.S. farm policy, conservation 45 T he land’s special significance may derive from its landscape, wildlife, or historical value. 46 7 U.S.C. §1308-3a(3). 47 FSA, “Average Adjusted Gross Income (AGI) Certification and Verification, 2014-2018,” March 2016. 48 Annual reports to Congress are required for waivers issued under this provision. 49 For additional information, see CRS Report R42459, Conservation Compliance and U.S. Farm Policy; and NRCS, “Conservation Compliance,” as of March 7, 2019, https://www.nrcs.usda.gov/wps/portal/nrcs/site/national/home/. 50 Federal crop insurance premium subsidies were previously included under conservation compliance from 1985 to 1995. However, the 1996 farm bill (P.L. 104-127) removed crop insurance from the list of benefits that could be lost if the farmer was found out of compliance. Congressional Research Service 12 U.S. Farm Programs: Eligibility and Payment Limits compliance continues to be one of the only environmental y based requirements for program participation.51 Ad Hoc Farm Revenue Support Program Eligibility Criteria Since 2018, USDA has established several large ad hoc payment programs that support farm revenue—first, the 2018 and 2019 Market Facilitation Programs (MFPs) in response to trade retaliation,52 and then in 2020, successive rounds of the Coronavirus Food Assistance Program (CFAP-1 and CFAP-2) in response to the Coronavirus Disease 2019 (COVID-19) pandemic.53 These programs were established under authorities outside of omnibus farm legislation and therefore are not subject to the same eligibility requirements as farm bil authorized programs discussed above. Instead of adhering to the AEF and AGI eligibility criteria previously discussed, USDA tailored producer eligibility under each of the ad hoc programs to meet each program’s relief assistance goals. 2018 MFP and 2019 MFP Eligibility The 2018 MFP was announced by USDA in July 2018 to provideof special significance.³⁸

In July 2018, USDA announced financial assistance under a new Market Facilitation Program (MFP) in response to retaliatory tariffs targeting various U.S. agricultural commodities.³⁹ The MFP provides direct payments to producers of selected commodities. To qualify, USDA requiresrequired that MFP recipients meet AEF, AGI, and conservation compliance (see below) criteria. For payments under the 2018 MFPAlso, a producer'’s average AGI for tax years 2014, 2015, and 2016 must be less than $900,000. However, Congress subsequently amended the AGI criterion as it applies to MFP payments in the FY2019 Supplemental Appropriations for Disaster Relief Act (P.L. 116-20, , §103).⁴⁰54 The MFP-relevant AGI criterion was amended to (1) use the tax years 2013, 2014, and 2015 to calculate average AGI for evaluating eligibility for 2018 MFP payments and (2) allowal ow eligibility for AGI in excess of $900,000 if at least 75% came from farming, ranching, or forestry-related activities. It is unclear if MFP payments made in 2018 under the previous AGI criteria would be re-evaluatedreevaluated against the new AGI specification and would then be subject to repayment if the new AGI formulation made a producer ineligible.

In May 2019, USDA announced a second round of MFP payments—referred to as 2019 MFP payments.⁴¹ To qualify, USDA requiresrequired 2019 MFP recipients to meet AEF, AGI, and conservation compliance criteria. However, the AGI criteria to assess eligibility for the 2019 MFP payments would useused the 2015, 2016, and 2017 tax years but retained the exception whereby if at least 75% of AGI was derived from farming, ranching, or forestry-related activities then the AGI criteria no longer applied. CFAP-1 and CFAP-2 Eligibility In April 2020, USDA announced the first Coronavirus Food Assistance Program (CFAP-1).55 CFAP-1 included up to $16 bil ion in direct payments to eligible producers of qualifying 51 A number of overarching environmental policies apply to agricultural production. However, conservation compliance is one of the only environmentally related policies authorized and overseen by the agriculture committees within the context of farm program participation. 52 See CRS Report R45310, Farm Policy: USDA’s 2018 Trade Aid Package, and CRS Report R45865, Farm Policy: USDA’s 2019 Trade Aid Package. 53 See USDA, “ Coronavirus and USDA Assistance for Farmers,” https://www.farmers.gov/coronavirus. 54 CRS In Focus IF11245, FY2019 Supplemental Appropriations for Agriculture. 55 See CRS Report R46395, USDA’s Coronavirus Food Assistance Program (CFAP) Direct Payments. Congressional Research Service 13 link to page 24 U.S. Farm Programs: Eligibility and Payment Limits commodities.56 USDA has developed criteria to determine which commodities and which producers are eligible for CFAP support. For example, to be eligible for a payment, a commodity must have suffered a price loss of at least 5% during the mid-January to mid-April period or been subject to additional significant marketing costs for unexpected supply chain disruptions, including unsold inventories and, for certain commodities, spoilage caused by disruption of the food supply chain. Eligible commodities were listed in the program’s final rule—additional commodities were added in subsequent corrections to the final rule.57 For an individual or legal entity to be eligible for CFAP-1 payments, they were required to complete an application to determine the quantities affected and to meet certain other criteria. These criteria included conservation compliance; sharing in the risk of profit and loss from the farm’s operation (a difference from the more stringent AEF criteria); and having an average AGI for 2016, 2017, and 2018 of less than $900,000, unless at least 75% of AGI is from farming, ranching, or forestry- related activities. In September 2020, USDA announced the second Coronavirus Food Assistance Program (CFAP- 2), which included up to $14 bil ion in direct payments to producers.58 USDA expanded the number of eligible commodities but retained most of the producer eligibility criteria from CFAP- 1, including the AGI limit.59 the 2015, 2016, and 2017 tax years.

Conservation Compliance

Direct Attribution of Payments

Direct Attribution of Payments The process of tracking payments to an individual through various levels of ownership in single and multiperson legal entities is referred to as "“direct attribution."” Several types of legal entities may qualify for farm program payments. However, ultimately every legal entity represents some combination of individuals. For example, a joint operation can be made up of a combination of individuals, partnerships, and/or corporate entities. A particular individual may be part of each of these three component entities, as well wel as additional subentities within each of these components. Farm payments flow down through these arrangements to individual recipients.

For purposes of farm program payments, Congress defines legal entity as an entity created under federal or state law that (1) owns land or an agricultural commodity or (2) produces an agricultural commodity.⁴⁵60 This broad definition encompasses the multiperson legal entities discussed earlier such as family farm operations, joint ventures, corporations, and institutional arrangements. Ownership shares in a multiperson legal entity are tracked via a person'’s SSN or EIN as reported in CCC-901 and CCC-902. Identification at the individual payment recipient level is critical for assessing the cumulative payments of each individual against the annual payment limit.

Direct attribution was originally authorized in the 2008 farm bill 56 On May 19, 2020, USDA released the final rule that detailed CFAP’s $16 billion direct payment program, including the list of eligible commodities, eligibility requirements for producers, payment calculations, and application procedures. 57 USDA, “Coronavirus Food Assistance Program, Final Rule,” 85 Federal Register 30825, May 21, 2020; USDA, “Coronavirus Food Assistance Program, Correction,” 85 Federal Register 35799, June 12, 2020; USDA, “Coronavirus Food Assistance Program, Correction,” 85 Federal Register 41382, July 10, 2020; and USDA, “Coronavirus Food Assistance Program, Correction,” 85 Federal Register 49593, August 14, 2020. 58 USDA, “ USDA to Provide Additional Direct Assistance to Farmers and Ranchers Impacted by the Coronavirus,” Press Release No. 0378.20, September 18, 2020 . 59 Refer to the section “ Special Payment Limits Under CFAP for a Corporate Entity” for a description of the difference. USDA, “Coronavirus Food Assistance Program, Final Rule,” 85 Federal Register 59380, September 22, 2020. 60 7 U.S.C. §1308(a)(3). Congressional Research Service 14 link to page 33 U.S. Farm Programs: Eligibility and Payment Limits Direct attribution was original y authorized in the 2008 farm bil (§1603(b)(3)).61 Al (§1603(b)(3)).⁴⁶ All farm program payments made directly or indirectly to an individual associated with a specific farming operation are combined with any other payments received by that same person from any other farming operation—based on that person'’s pro rata interest in those other operations. It is this accumulation of an individual'’s payments—tracked through four levels of ownership in multiperson legal entities—that is subject to the annual payment limit (see text box below).

The first level of attribution is an individual'’s personal farming operation. Subsequent levels of attribution are related to those legal entities in which an individual has an ownership share. If a person meets his or her payment limit at the first level of attribution (i.e., on his or her own personal farming operation), then any payments to legal entities at lower levels of attribution are reduced by that person'’s pro rata share.

Payment Limits

When the eligibility criteria—including AEF, AGI, conservation compliance, and others—are met, the cumulative benefits across certain farm programs are subject to specific annual payment limits limits (detailed in Table A-1) that can be received by an individual or legal entity in a year.

Explicit payment limits date back to the 1970s.⁴⁷62 Despite their longevity, payment limits are not universal among programs. Payment limits are also enforced differently for different types of legal entities (as mentioned earlier and summarized below). For example, certain program limits may be expanded depending on the number of participants, or they may be subject to exceptions, or they may not exist. The major categories of farm program support and the applicability of annual payment limits, if any, are briefly discussed below.

61 Prior to the 2008 farm bill, farmers were subject to the “three-entity rule” for determining whether an individual was within annual payment limits. Under this law, a person was permitted to receive payments up to the full cap on the first farm in which the person had a substantial beneficial interest and up to half the full cap on each of two additional farms. T he 2008 farm bill replaced this rule with direct attribution. 62 Carl Zulauf, “ Farm Payment Limits: History and Observations,” Farmdoc Daily, June 21, 2012. Congressional Research Service 15 link to page 33 U.S. Farm Programs: Eligibility and Payment Limits Farm Support Programs Subject to Annual Payment Limits Traditional yFarm Support Programs Subject to Annual Payment Limits

Traditionally, much attention focuses on the annual payment limits for the Title I commodity programs, largely because this has historical y been the conduit for the majority of farm program expenditures. Title I commodity program payment limits were first included in a farm bill bil in 1970 (Agricultural Act of 1970 [P.L. 91-524], §101) in 1970 but have evolved substantiallysubstantial y since that initial efforteffort (Table A-1).

Several major. Recently, the amount of payments made under ad hoc revenue support programs has surpassed payments made under Title I commodity programs. As these ad hoc programs are created by USDA, so too are the payment limits imposed. This has shifted attention to the payment limits developed by USDA, rather than those established by Congress. Farm Bill Support Programs Several farm support programs—as defined by specific titles of the 2018 farm billbil —are currently subject to annual payment limits.⁴⁸

• For example, the following three program categories each have their own separate payment limit.63  Title I (Subtitle A): ARC and PLC. Payments for the two revenue-support programs—Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC)— must be combined for all al covered commodities (except peanuts) and reduced by any sequestration64any sequestration⁴⁹ prior to assessing whether they are within the $125,000 annual payment limit for an individual. Peanuts are a notable exception to this rule in that ARC and PLC payments for peanuts (after sequestration) are subject to their own annual payment limit of $125,000 per individual.⁵⁰
• 65  Title I (Subtitle E): LFP. The LFP program is subject to an annual limit of $125,000 per person.⁵¹
• 66  Title I (Subtitle F):F): NAP.⁵².67 Available for crops not currently eligible for crop insurance. Payments for catastrophic coverage are limited to $125,000 per crop year per individual or entity. Payments for additional coverage (referred to as buy-up coverage) have a separate limit of $300,000 per crop year per individual or entity.

In addition to commodity programs authorized in periodic farm bills 63 T he programs discussed in this report do not represent a comprehensive list of farm programs and benefits. Instead, this report focuses on the most common programs and benefits deemed relevant to a discussion of program eligibility and payment limits. For a more comprehensive list of U.S. f arm programs, see CRS Report R45525, The 2018 Farm Bill (P.L. 115-334): Sum mary and Side-by-Side Com parison. 64 §1703(a)(3) of the 2018 farm bill. 65 Combined ARC and PLC payments are subject to an annual limit of $125,000 per person. For more information on commodity programs, potential benefits, eligible program crops, and other details, see CRS Report R45730, Farm Com m odity Provisions in the 2018 Farm Bill (P.L. 115-334). 66 Following the 2014 farm bill, all four disaster assistance programs included some form of a payment limit. T he Bipartisan Budget Act of 2018 (§20101, P.L. 115-123) removed the payment limit requirements for T AP and LIP. T he 2018 farm bill (§1501(e)) removed the payment limit requirement for ELAP. For more information, see CRS Report RS21212, Agricultural Disaster Assistance. 67 CRS Report RS21212, Agricultural Disaster Assistance. Congressional Research Service 16 U.S. Farm Programs: Eligibility and Payment Limits Ad Hoc Farm Revenue Support Programs In addition to commodity programs authorized in periodic farm bil s, the Secretary of Agriculture has broad authority under the CCC charter to make payments in support of U.S. agriculture.⁵³ 68 These payments may be purely ad hoc in nature, or they may be made according to a formula as part of a temporary program. Payments under this type of authority may or may not be subject to payment limits in accordance with the program'’s specification.

Three such programs have been initiated For example, neither of the underlying authorities used to initiate the MFP and CFAP ad hoc programs—primarily the CCC Charter Act, but also the CARES Act for CFAP-1—require payment limits. Applying payment limits was done at USDA’s discretion. Benefits received under farm bil support programs such as the ARC and PLC are not added to MFP or CFAP payments when calculating payment limits. In other words, payment limits for MFP and CFAP are independent of other farm program benefits received by a farm. Ad hoc programs that have been initiated at the discretion of USDA since 2016—all subject to since 2016—all subject to annual payment limits.

• 1. —include the following. 1. Cotton Ginning Cost Share (CGCS) Program. The CGCS program has been available available only in the 2016 and 2018 crop years.⁵⁴69 Payments under the CGCS program arewere subject to an annual payment limit of $40,000 per person.
• 2. 2. 2018 MFP. USDA established the MFP program in August 2018 as a one-time payment program to help offset the financial losses associated with lost agricultural tradeexports to China as a result of a trade dispute with the United States.⁵⁵ States.70 MFP payments arewere subject to a per-person payment limit of $125,000. However, the limit appliesFurthermore, the MFP payment limit applied separately to each of three categories of commodities—field crops (corn, sorghum, soybeans, upland cotton, and wheat); livestock (dairy and hogs); and specialty crops (shelledshel ed almonds and fresh, sweet cherries).
• 3. Thus, a recipient could potential y receive 2018 MFP payments of up to $375,000 in combined payments under the three commodity categories. 3. 2019 MFP. In July 2019 USDA established a second round of MFP payments, again subject to per-person payment limits, but at a higher rate of $250,000 per commodity category with an overall overal cap of $500,000 per person.⁵⁶71 The three eligible eligible categories included non-specialty crops (primarily grain and oilseed crops), specialty crops (selected tree nuts, cranberries, ginseng, sweet cherries, and table grapes), and livestock (hogs and dairy).

4. CFAP-1. Under the CFAP-1, payments were available for over 120 different commodities.72 Total combined CFAP-1 payments, for al commodities, were limited to $250,000 per person—this limit was entirely unique and separate from other farm program payment limitations, including those for the MFP programs. In addition, USDA made an exception for corporate entities with multiple shareholders that contributed at least 400 hours of personal labor or management 68 For details, see CRS Report R44606, The Commodity Credit Corporation: In Brief. 69 For more information, see the FSA online site for “Cotton Ginning Cost Share Program” at https://www.fsa.usda.gov/programs-and-services/cgcs/index. 70 For details, see CRS Report R45310, Farm Policy: USDA’s 2018 Trade Aid Package. 71 For details, see CRS Report R45865, Farm Policy: USDA’s 2019 Trade Aid Package. 72 CRS Report R46395, USDA’s Coronavirus Food Assistance Program (CFAP) Direct Payments. Congressional Research Service 17 link to page 33 U.S. Farm Programs: Eligibility and Payment Limits time to the operation of the corporate entity. These corporate entities could receive up to $750,000 in CFAP-1 payments based on the number of qualifying shareholders (not to exceed three). 5. CFAP-2. Under CFAP-2, USDA retained the same payment limit structure established for CFAP-1; however, the limits applied uniquely to CFAP-2 payments and not to payments from other farm programs including the two MFP programs and CFAP-1.73 When the farm program benefits for a qualifying recipient exceed the annual limits (as listed in Table A-1) for a given year, then that individual is no longer eligible for further benefits under that particular program during that year and is required to refund any payments already received under that program that are in excess of the relevant payment limit for that year.

Special Treatment of Family Farms Under the 2018 farm bil (§1703(a)(1)), the definition of family member was extended beyond the direct lineal family unit (grandparents, parents, and children) to include first cousins, nieces, and nephews. Under the August 24 rule, every adult member—18 years or older—of a family farm (except for spouses of qualifying members) must meet the AEF requirements in order to be eligible to receive farm program payments in an amount up to the individual payment limit.74 Thus, a family farm maySpecial Treatment of Family Farms

As mentioned earlier, family farms receive special treatment whereby every adult member—18 years or older—is deemed to meet the AEF requirements and is potentially eligible to receive farm program payments in an amount up to the individual payment limit. Furthermore, under the 2018 farm bill (§1703(a)(1)), the definition of family member was extended to include first cousins, nieces, and nephews. Thus, a family farm with a single active farm operator may still qualify for multiple payment limits based on the number of immediate and extended family members that satisfy AEF criteria. For example, suppose that a farmer who is married with two adult children (both married) also has twoa neighboring married cousins, each with two children, that occasionally help out with farm workcousin with two adult children (both married) who work part time on the farmer’s operation. This farm operation could potential ycould potentially be eligible for 12 individual payment limits (four (six on the core farm operation and four from each of six from the cousin's families’s family) for a total of $1.5 million mil ion in program payments.

Six family members would have to meet the AEF criteria, but the six spouses would be deemed to have met the AEF requirement. However, the farming operation would have to be sufficiently large or complex because each of the six family members subject to the AEF requirements must necessarily perform at least 500 hours of personal labor or management work each year. Multiple Payment Limits for a Partnership A partnership’Multiple Payment Limits for a Partnership

A partnership's potential payment limit is equal to the limit for a single person times the number of persons or legal entities that comprise the ownership of the joint operation plus any additional exemptions or exceptions. Adding a new member can provide one or two (with qualifying spouse) additional payment limits.

Each member of a partnership or joint venture must meet the AEF criteria and must be within the AGI limit. Furthermore, the partnership'’s total payment limit is reduced by the share of each single member who has already met his or her payment limit (or portion thereof) on another farm operation outside of the partnership.

Single Payment Limit for a Corporation

A corporation is treated as a single person for purposes of determining eligibility and payment limitslimits for farm bil authorized support programs75—provided that the entity meets the AEF 73 USDA, “Coronavirus Food Assistance Program, Final Rule,” 85 Federal Register 59380, September 22, 2020. 74 USDA, “Payment Limitation and Payment Eligibility,” Final Rule, 85 Federal Register 52033, August 24, 2020. 75 T hat is, farm programs authorized under omnibus farm legislation and subject to standard payment limits, such as ARC and PLC. Congressional Research Service 18 link to page 25 link to page 25 link to page 24 link to page 24 U.S. Farm Programs: Eligibility and Payment Limits —provided that the entity meets the AEF criteria. Adding a new member to the corporation generallygeneral y does not affect the payment limit but onlyrather increases the number of members that can share athe single payment limit.

However, as described in the previous section, corporate entities are treated differently under the CFAP programs. Special Payment Limits Under CFAP for a Corporate Entity Depending on the number of shareholders that contributed at least 400 hours of personal labor or management time to the operation of a corporate entity, it may be eligible for up to three payment limits or $750,000 in payments under each of CFAP-1 and CFAP-2. The “special payment limit” for corporate entities initial y created under CFAP-1 has been extended to CFAP-2 but with two changes in its application with respect to CFAP-2 payments: (1) the special payment limit is extended to trust and estates; and (2) the method of payment attribution for individuals within a corporate entity is altered such that an individual’s total payments are not reduced based on ownership share in the corporate entity.76 Supplemental Assistance Programs Subject to Payment Limits Supplemental Assistance Programs Subject to Payment Limits

In FY2018 and FY2019, Congress provided several supplemental appropriations for production losses resulting from natural disasters and not covered by NAP or crop insurance. The majority of the supplemental funding has been administered by USDA through two versions of a similar program—the Wildfires and Hurricanes Indemnity Program (WHIP). Losses occurring in 2017 were eligible for the "“2017 WHIP."⁵⁷”77 An expanded set of losses occurring in 2018 and 2019 are eligible for "eligible for “WHIP Plus"” (referred to as WHIP+).⁵⁸78 In addition to WHIP+, USDA implemented two other ad hoc programs—the On-Farm Storage Loss Program and the Milk Loss Program—as well wel as block grants with states.⁵⁹79 USDA established payment limits for WHIP under authority granted to the Secretary in authorizing legislation.⁶⁰

80 Payment limits for 2017 WHIP and WHIP+ are based on an individual's ’s or entity'’s average AGI over a three-year period depending on how much of that income is derived from farming (Table 2)3). Producers are assumed to be in the lowest payment limit category unless an exception to the payment limit is filed using a USDA form and documentation from a certified public accountant or attorney that at least 75% of the person'’s or legal entity'’s average AGI was from adjusted gross farm income.⁶¹81 Unlike the aforementioned AGI consent form (CCC-941), verification of payment limit exceptions is not submitted to the IRS for the WHIP programs. Direct attribution applies for both payment limits and for determining average AGI. 76 USDA, “Coronavirus Food Assistance Program, Final Rule,” 85 Federal Register 59380, September 22, 2020. 77 Funding was authorized in the Bipartisan Budget Act of 2018 (P.L. 115-123). T he FY2020 Further Consolidated Appropriations Act (P.L. 116-94) rescinded the unobligated balance of 2017 WHIP and repurposed the funding to the current WHIP+, which was further amended by the act. 78 Funding was authorized in the Additional Supplemental Appropriations for Disaster Relief Act of 2019 ( P.L. 116-20). For more information, see CRS In Focus IF11245, FY2019 Supplemental Appropriations for Agriculture. 79 Eligibility requirements and payment limits for subprograms and block grants may vary from the WHIP programs. For more information, see CRS Report RS21212, Agricultural Disaster Assistance. 80 See footnote 77 and footnote 78. 81 Farm income includes income received or obtained from farming, ranching, and forestry operations. Congressional Research Service 19 U.S. Farm Programs: Eligibility and Payment Limits Table 3. Wildfires and Hurricanes Indemnity Program Payment Limits 2017 WHIP WHIP+ Tax years used to calculate AGI 2013, 2014, 2015 2015, 2016, 2017 If average AGI is: Then determining average AGI.

Conservation Programs Subject to Payment Limits

Limits Payment limits on conservation programs have existed long before limits on farm support programs have.⁶²were applied to farm support programs.82 Most current conservation programs include some limit on the amount of funding a participant may receive, but these limits vary by program. Some programs have multiple limits that vary based on activity or practice implemented. Several major conservation programs in Title II of the 2018 farm bill bil are currently subject to payment limits.⁶³

• 83  Conservation Reserve Program (CRP). Payments for CRP can vary based on the type of contract and type of payment. In general, annual rental payments for general enrollment contracts and continuous enrollmentenrol ment contracts are limited to 85% and 90% of the average county rental rate, respectively, and not more than $50,000 total per year per person. Cost-share payments and incentive payments are also limited and may be waived or applied at different levels under subprograms of CRP, such as land enrolled under the Conservation Reserve Enhancement Program or the Soil Health and Income Protection Pilot.⁶⁴
• 84  Environmental Quality Incentives Program (EQIP). Total cost-share and incentive payments are limited to $450,000 for all al EQIP contracts entered into by a person or legal entity between FY2019 and FY2023. Additional limits apply to select EQIP contract payments, including incentive contract payments, which are limited to a total of $200,000 between FY2019 and FY2023; payments for EQIP conservation practices related to organic production, which are limited to a total of $140,000 between FY2019 and FY2023; and eligible water management entity payments, which are limited to a total of $900,000 between FY2019 and FY2023.
•  Conservation Stewardship Program (CSP). A person or legal entity may not receive more than a total of $200,000 for all al CSP contracts between FY2019 and 82 For example, the Agricultural Adjustment Act of 1938 (P.L. 75 -430, §102) amended the Soil Conservation and Domestic Allotment Act (49 Stat. 1149; 50 Stat. 329) to limit payments for soil conservation assistance to $10,000 per year per person. 83 T he programs discussed in this section do not represent a comprehensive list of conservation programs and benefits. Instead, this section focuses on the largest programs (by funding level). For a more comprehensive list of conservation programs and provisions under the conservation title of the 2018 farm bill, see CRS Report R45698, Agricultural Conservation in the 2018 Farm Bill. 84 Cost-share and incentive payments are typically one-time payments under CRP and therefore not discussed in detail in this report. For additional information on these limits, see CRS Report R45698, Agricultural Conservation in the 2018 Farm Bill. Congressional Research Service 20 link to page 27 link to page 27 U.S. Farm Programs: Eligibility and Payment Limits CSP contracts between FY2019 and FY2023. A CSP contract with any joint operation is limited to $400,000 over the term of the contract period. These limits do not apply to the CSP Grassland Conservation Initiative, in which annual payments are limited to $18 per acre, not to exceed the number of base acres on a farm.

Exceptions That Avoid Payment Limits

Payments under certain Title I and Title II programs in the 2018 farm bill bil are excluded from annual payment limits. These exceptions are described belowprograms without payment limits are described below, by farm bil title and subtitle. Another exception to payment limits could result if the principal operator or a major partner of a farm operationof a farm operation, or a major partner, dies during the course of a program year and any associated program benefits for the deceased are transferred to another farm operator or partner (see “Death of a Principal Operator” later in this report for details). .

Selected Farm Programs Without Payment Limits

Certain farm programs are not subject to annual payment limits. This includes any benefits obtainable under the Marketing Assistance Loan (MAL) program, the sugar program, the dairy program, and three of the four disaster assistance programs (ELAP, LIP, and TAP). Also, benefits from crop insurance premium subsidies and indemnity payments on loss claims are not subject to any limits. FinallyFinal y, any payments made under the Emergency Watershed Protection Program (EWP) are not subject to payment limits.⁶⁵

•  Title I (Subtitle B) MAL program. Benefits under the MAL program include loan deficiency payments (LDP), marketing loan gains (MLG), and gains under forfeiture or commodity certificate exchanges. TraditionallyTraditional y, MAL benefits in the form of LDPs and MLGs have been subject to payment limits, whereas MAL benefits derived from forfeiting to the CCC the quantity of a commodity pledged as collateral for a marketing assistance loan, or from use of commodity certificates to repay a marketing assistance loan, have traditional y have traditionally been excluded from payment limits. However, the 2018 farm bill bil (§1703(a)(2)) excluded all al MAL benefits from payment limits.
•  Title I (Subtitle C) sugar program. The U.S. sugar program does not rely on direct payments from USDA and generallygeneral y operates with no federal budget outlays.⁶⁶ outlays.85 Instead, the sugar program provides indirect price support to producers of sugar beets and sugarcane and direct price guarantees to the processors of both crops in the form of a marketing assistance loan at statutorily fixed prices. 86 Congress has directed USDA to administer the U.S. sugar program at no budgetary cost to the federal government by limiting the amount of sugar supplied for food use in the U.S. market, thus indirectly supporting market prices. This indirect subsidy is implicit and not subject to budgetary restrictions. Furthermore, there is no citizenship requirement for a sugar processor, but the sugarcane and sugar beets being processed under the U.S. sugar program price guarantees must be of U.S. origin.
• 85 For more information, see CRS Report R43998, U.S. Sugar Program Fundamentals. 86 Both sugar and dairy producers receive additional indirect price support in the form of tariff -rate quota (T RQ) protection from imports. However, T RQ-related indirect support is not considered in this discussion because T RQs are not based on policy set in the farm bill. Congressional Research Service 21 link to page 21 U.S. Farm Programs: Eligibility and Payment Limits  Title I (Subtitle D) dairy program. The margin-based dairy support program was first established under the 2014 farm bill bil (§§1401-1431) without payment limits as the Margin Protection Program (MPP) for dairy.⁶⁷87 The MPP was revised and renamed as the Dairy Margin Coverage (DMC) program by the 2018 farm billbil . Under the DMC, participants benefit from two potential types of support: an implicit premium subsidy and an indemnity-like payment made when program price triggers are met. The fees or premiums charged for participating in the DMC are set in statute rather than being set annuallyannual y based on historical data and market conditions. Thus, the subsidy is implicit to the premium paid with no limit on the level of participation. Similarly, any payments made under the DMC are not subject to payment limits.
•  Title I (Subtitle E) E) disaster assistance programs programs: ELAP, LIP, and TAP. Payments under three of the disaster assistance programs in Title I of the 2018 farm bill bil are excluded from any payment limits. This includes ELAP, LIP, and TAP.88  TAP.⁶⁸
• Title II conservation programs. Total payments under certain conservation programs are limited to the value or cost of the specific conservation measure that the program is paying for rather than a fixed dollar limit. Under the Agricultural Conservation Easement Program and the EWP program, payments are limited to a portion of the total cost of the easement or project rather than a total funding dollar amount. In the case of the Regional Conservation Partnership Program (RCPP), USDA may make payments to producers in an amount necessary to achieve the purposes of the program with no statutory limit on the total amount.
•  Title XI crop- and livestock-related insurance premium subsidies and indemnity payments. The principal support provided for farmers under the federal crop insurance program are federal premium subsidies for both catastrophic and buy-up insurance coverage.⁶⁹89 Premium subsidies are not subject to any limit on the level of participation or underlying value. Crop insurance indemnities are payments made to cover insurable losses and thus are not subject to any payment limit. To be eligible to purchase catastrophic risk protection coverage, the producer must be a "person"“person” as defined by USDA, and to be eligible to purchase any other plan of insurance (such as buy-up coverage, among others), the producer mustand be at least 18 years of age and have a bona fide insurable interest in a crop as an owner-operator, landlord, tenant, or sharecropper.

Death of a Principal Operator

A noteworthy exception to payment limits may occur if the principal operator should die during the crop year. In particular, payments received directly or indirectly by a qualifying person (i.e., someone who meets AEF, AGI, and any other eligibility requirements) may exceed the applicable limitation if all 87 See CRS Report R43465, Dairy Provisions in the 2014 Farm Bill (P.L. 113-79). 88 See footnote 66 for a narrative of when these limits were removed. For more information on the disaster assistance programs, see CRS Report RS21212, Agricultural Disaster Assistance. 89 USDA’s Risk Management Agency pays for a portion of the premium cost to purchase crop insurance coverage. T his subsidy has averaged $6.4 billion per year from 2011 to 2018. Premiums are charged on a per-acre basis and rise with the value of the insured crop. As a result, larger farmers receive greater premium subsidy support than do smaller farmers. However, Congress has refrained from imposing any payment limits on the premium subsidy out of concern that such a limit would discourage participation. For more information, see CRS Report R43758, Farm Safety Net Program s: Background and Issues. Congressional Research Service 22 U.S. Farm Programs: Eligibility and Payment Limits limitation if al of the following apply: ownership interest in farmland or agricultural commodities was transferred because of death, the new owner is the successor to the previous owner'owner’s contract, and the new owner meets all al other eligibility requirements. This provision also applies to an ownership interest in a legal entity received by inheritance if the legal entity was the owner of the land enrolled in an annual or multiyear farm program contract or agreement at the time of the shareholder'’s death.

The new owner cannot exceed the payment amount that the previous owner was entitled to receive under the applicable program contracts at the time of death. However, the new payment limit associated with this transfer would be in addition to the payment limit of the person'’s own farm operation. If the new owner meets all al program and payment eligibility requirements, this provision applies for one program year for ARC and PLC. This reflects the idea that individual resources were committed by both farming operations (the deceased'’s and the inheritor'’s) during the growing season with no expectation of death and that individual payment limits should reflect that resource commitment and not impose an unnecessary and unexpected burden on the inheritor.

Issues for Congress

Limitations on farm program payments raise a number of issues that have led to debate among farm policymakers and agricultural stakeholders and may continue to be of interest to Congress as it considers issues of equity and efficiency in farm programs.

Payment Limits and Market Signals

Theoretically Theoretical y, market prices—based on relative supply and demand conditions under competitive market conditions⁷⁰conditions90—provide the most useful signals for allocatingal ocating scarce resources. In other words, in a situation where no policy support is available, most producers would make production decisions based primarily on market conditions. If these conditions hold, then tighter payment limits limits (i.e., a smallersmal er role for government support policies and production incentives) would imply that more land would be farmed based on market conditions and less land would be farmed based on policy choices.

Supporters of payment limits use both economic and political arguments to justify tighter limits.⁷¹ Economically 91 Economical y, they contend that large payments facilitate consolidation of farms into larger units, raise the price of land, and put smallersmal er, family-sized farming operations and beginning farmers at a disadvantage. Even though tighter limits would not redistribute benefits to smallersmal er farms, they saycontend that tighter limits could help indirectly by reducing incentives to expand, thus potentially potential y reducing upward price pressure on land markets. This could help small smal and beginning farmers buy and rent land. PoliticallyPolitical y, they believe that large payments are costly and undermine public support for farm subsidies and are costly. In the past, newspapers have published stories critical of farm payments and how they are distributed to large farms, nonfarmersnon-farmers, or landowners.⁷² Limits increasingly appeal to urban lawmakers and have advocates among smaller farms and 92 Limits 90 Competitive market conditions include transparent, easily accessible knowledge of market conditions by all participants; no barriers to entry or exit; relatively homogeneous goods; a large number of market participants, all of which behave rationally and are price takers; no externalities; and the absence of intrusive government regulation. Paul Krugman and Robin Wells, Microeconom ics, 2nd ed. (New York: Worth Publishers, 2009). 91 For example, see National Sustainable Agriculture Coalition, “2014 Farm Bill Drilldown: Subsidy Reform and Fair Competition,” February 14, 2014, http://sustainableagriculture.net/blog/farm-bill-subsidy-reform/. 92 For example, see the Washington Post series “Harvesting Cash,” published in 2006, at http://www.washingtonpost.com/wp-srv/nation/interactives/farmaid/. Congressional Research Service 23 U.S. Farm Programs: Eligibility and Payment Limits increasingly tend to appeal to urban lawmakers and have advocates among smal er farms and social interest groups. social interest groups.

Critics of payment limits (and thus supporters of higher limits or no limits) counter that all farms al farms are in need of support, especiallyespecial y when market prices decline, and that larger farms should not be penalized for the economies of size and efficiencies they have achieved. They say that farm payments help U.S. agriculture compete in global markets and that income testing is at odds with federal farm policies directed toward improving U.S. agriculture and its competitiveness.

In addition to these concerns, this section briefly reviews other selected payment limit issues and eligibility requirements.

eligibility requirements. Distributional Impacts on Farm Size

The majority of farm payments go to a small smal share of large operators. According to USDA'’s 2017 Agricultural Census, farms with market revenue equal to or greater than $250,000 accounted for 12% of farm households but produced 90% of the value of total U.S. agricultural production and received 62% of federal farm program payments.

Selecting a particular dollar value as a limit on annual government support payments involves a fundamental choice about who should benefit from farm program payments. This has important, but complex, policy implications. For example, numerous academic studies have shown that government payments are usuallyusual y capitalized into cropland values, thus raising rental rates and land prices. Higher land values disfavor beginning and small smal farmers, who generallygeneral y have limited access to capital. As a result, criticsproponents of tighter payment limits contend that there is a lack of equity and fairness under the current system of farm program payments that appears to favor large operations over small smal and that payment limits are reallyreal y about farm size.

In contrast, supporters of the current system argue that larger farms tend to be more efficient operators and that altering the system in favor of smallersmal er operators may create inefficiencies and reduce U.S. competitiveness in international markets. Furthermore, they contend that tightening payment limits will wil have different effects across crops, thus resulting in potentially uneven and potential y harmful regional effects.

Potential Crop and Regional Effects of Tighter Payment Limits

Tighter payment limits do not affect all al crops and regions equallyequal y. As limits are tightened, they will likely wil likely first impact those crops with higher per-unit and per-acre production value. Among the major U.S. program crops, higher valued crops include rice, peanuts, and cotton, all al of which tend to be produced in the Southeast, the Mississippi Delta, and western states.⁷³

93 Furthermore, payment limits may influence local economic activity. In particular, payment limits are likely to have a larger economic impact in regions where agricultural production accounts for a larger share of economic output—that is in rural, agriculture-based counties—and where there may be fewer opportunities for diversification to offset any payment-limit-induced reduction in agricultural incomes.

93 Food and Agricultural Policy Research Institute, Stricter Payment Limits, June 17, 2003; and Stricter Payment Lim its: Additional Inform ation, June 24, 2003. Congressional Research Service 24 U.S. Farm Programs: Eligibility and Payment Limits Separate Payment Limit for Peanuts Separate Payment Limit for Peanuts

Under current law, peanuts have a separate program payment limit—a consequence of the 2002 federal quota buyout (P.L. 107-171, §1603).⁷⁴94 This separate payment limit affords peanut production an advantage over production of other program crops that are subject to combined payments for ARC and PLC under a single limit. As a result of this feature, a farmer who grows multiple multiple program crops including peanuts has essentiallyessential y two different program payment limits:

• 1. 1. $125,000 per person for an aggregation of ARC and PLC program payments made to all al program crops other than peanuts, and
• 2. 2. $125,000 per person for ARC and PLC program payments made exclusively to peanuts.

Thus, under an extreme scenario involving large payments for both peanuts and other program crops, this could potentiallypotential y double a peanut farmer'’s payment limits to as much as $250,000.

No Payment Limit on MAL Benefits

The 2018 farm bill bil (§1703) excluded MAL benefits from any payment limit while also raising the MAL rates for several program crops (§1202), including barley, corn, grain sorghum, oats, extra- long-staple cotton, rice, soybeans, dry peas, lentils, and small smal and large chickpeas.

Raising MAL rates has two potential program effects. First, since MAL rates function as floor prices for eligible loan commodities, higher rates increase the potential for greater USDA outlays under MAL. Second, MAL rates are used to establish the floor price in calculating the maximum payment under PLC. Thus, raising the loan rate for a program commodity lowers its potential PLC program payment rate.

The absence of a limit on benefits received under the MAL program creates the potential for unlimited, fully coupled USDA farm support outlays. As a result, an apparent equity issue emerges when comparing program benefits of a producer facing a hard cap for ARC and PLC payments as compared to a producer with access to MAL benefits.

Because MAL payments are fully coupled—that is, tied to the production of a specific crop— MAL program outlays count directly against U.S. amber box spending limits under World Trade Organization (WTO) commitments.⁷⁵95 To the extent that such program outlays might induce surplus production and depress market prices, they could result in potential challengeschal enges under the WTO' WTO’s dispute settlement mechanism.⁷⁶

96 Policy Design Considerations

When eligibility requirements or payment limits are changed, economically rational producers are likely likely to alter their behavior to make adjustments to optimize net revenue under the new set of policy and market circumstances. For example, new eligibility requirements or tighter payment limits may result in

• a reorganization of the farm operation to increase the number of eligible persons 94 For details, see CRS Report R44156, U.S. Peanut Program and Issues; and Eric Dohlman et al., “ T he Post-Buyout Experience: Peanut and T obacco Sectors Adapt to Policy Reform ,” ERS, November 2009. 95 According to WT O classifications, amber box programs are the most market -distorting type of programs and thus are subject to strict aggregate annual spending limits. T he United States has committed to an annual spending limit of $19.1 billion for amber box outlays. For more information, see CRS Report R45305, Agriculture in the WTO: Rules and Lim its on U.S. Dom estic Support. 96 See CRS Report R43817, 2014 Farm Bill Provisions and WTO Compliance. Congressional Research Service 25 link to page 10 link to page 36 U.S. Farm Programs: Eligibility and Payment Limits  a reorganization of the farm operation to increase the number of eligible persons or to lower the income that counts against a new AGI limit or the farm program payments that count against a smallersmal er payment limit;
•  a change in the crop and program choices or marketing practices, for example, to take advantage of the absence of a payment limit on MAL benefits;
•  a change in crop choices, as agronomic and marketing opportunities allowal ow, to favor a crop with an expanded limit (e.g., peanuts) over crops with more restricted program payment opportunities; or
•  a change in land use, such as instead of farming the same acreage, renting out or selling sel ing some land to farmers who have not hitreached their payment limits.

Payment limits applied per unit or per base acre represent an alternative to per-person payment limits that may mitigate some potential distortions to producer behavior. An example of such a per-unit payment limit is the 85% payment reduction factor applied to base acres⁷⁷acres97 receiving payments under either the PLC or ARC programs. The reduction factor is applied equally across all equal y across al program payments irrespective of crop choice, farm size, AGI, or total value of payments. Some economists contend that such a payment reduction factor is generally applied for cost-saving reasons rather than for "fairness" or equity reasons that at least partially motivate per-person payment limits.⁷⁸

AGI Limit Concerns: On- versus Off-Farm Income

The 2018 farm bill bil retained the $900,000 AGI limit established under the 2014 farm billbil . This AGI limit applies to all al farm income whether earned on the farm or off.⁷⁹98 Under the 2008 farm billbil , the AGI limit was divided into two components: a $500,000 AGI limit for farm-earned income and a $750,000 AGI cap on nonfarm-earned income.

Analysis by USDA (2016) published in 2016 found that fewer farms are affected by the single AGI cap ($900,000) compared with the multiple farm ($500,000) and nonfarm ($750,000) AGI caps of the 2008 farm bill.⁸⁰ For example, while federal income tax data are not available for the $900,000 cap level, published data from 2013—a year of record-high farm income—found that only about 0.7% of all farm sole proprietors and share rent landlords reported total AGI in excess of $1 million.2008 farm bil .99 Thus, it is likely that consolidating the separate AGI farm and nonfarm limits into a single AGI limit with a higher bound has restored eligibility for farm program payments to some farm operations that had previously been disqualified. Other major exemptions from the AGI limit include state and local governments and agencies, federallyfederal y recognized Indian tribes, and waivers under RCPP.

The 2014 farm bill bil shifted the farm safety net focus away from traditional revenue support programs and toward crop insurance programs, which are not subject to the AGI cap. The 2018 farm bill bil maintains this emphasis on crop insurance as the foundational farm safety net program. During the eight-year period of 2011-2018, federal crop insurance premium subsidies averaged $6.4 bil ion annual y as compared to $7.6 bil ion under traditional revenue support programs.100 $6.4 billion annually. Extending the AGI cap to crop insurance subsidies was considered during both the 2014 and 2018 farm bill bil debates. However, concerns were raised that the elimination of subsidies for higher- 97 See footnote 16 for a description of base acres. 98 As noted in Table A-2, an exception to this AGI rule has been made for both the 2018 and 2019 MFP payments if at least 75% of AGI originates from farm, ranch, or forestry -related activities. 99 Ron Durst and Robert Williams, “Farm Bill Income Cap for Program Payment Eligibility Affects Few Farms,” Am ber Waves, August 1, 2016. T he authors found that , while federal income tax data are not available for the $900,000 cap level, from published data from 2013—a year of record-high farm income—about 0.7% of all farm sole proprietors and share rent landlords reported total AGI in excess of $1 million. 100 Crop insurance premium subsidies are from USDA, RMA, Summary of Business data; revenue support programs include ARC, PLC, MPP, MAL, agricultural disaster assistance, and miscellaneous programs from USDA, ERS, farm income database. Congressional Research Service 26 U.S. Farm Programs: Eligibility and Payment Limits debates. However, concerns were raised that the elimination of subsidies for higher-income participants could affect overall overal participation in crop insurance and damage the soundness of the entire program. However, USDA has estimated thatAccording to USDA estimates, in most years, less than 0.5% of farms and less than 1% of premiums would be affected by the $900,000 income cap on farm program payments if it were extended to crop insurance subsidies.101 101 Durst and Williams, “Farm Bill Income Cap.” Congressional Research Service 27 link to page 35 link to page 35 link to page 35 link to page 35 link to page 35 link to page 35 link to page 35 link to page 35 link to page 35 link to page 35 Appendix A. Supplementary Tables Table A-1. U.S. Farm Program Eligibility Requirements and Payment Limitations U.S. AGI Conservation Program Payment Type AEFa Citizenb Limit Compliance Payment Limit Commodity Programs Combined PLC and ARC payments (al except peanuts)c X — X X $125,000 per CY per person PLC and ARC payments for peanuts X — X X $125,000 per CY per person for peanuts Benefits under the MAL programd X — X X Unlimited Cotton Ginning Cost-Share Programe X — X X $40,000 per CY per person Dairy Margin Coverage Program — — — X Unlimited Sugar Program (implicit price support benefits)f — — — — Unlimited MFP 2018 MFP 2019 MFP Non-specialty cropsg X — Xh X if it were extended to crop insurance subsidies as well as to farm program payments.⁸¹

Appendix A.

Appendix B. Supplementary Tables