ERP Unintended Issues
Prevent Plant 2020 – Background
In 2019 USDA announced an extension of harvest or extended the end of insurance periods for crops to allow more time for producers to harvest their crops. This delay in harvest extended to crops being harvested in the spring, thus delaying normal tillage and fall preparation for spring planting. Combined with even a normal rainfall this caused enormous amounts of prevent plant throughout North Dakota (2nd most in history). We turned in those losses with a Notice of Loss Date between May and June of 2022. However, when the company adjusters filled out their paperwork, they used cause of loss dates in 2019 as well as 2020.
When RMA data mined losses eligible for the ERP program, they used cause of loss dates to not conflict with the Whip payments that were from 2018 and 2019. Their date mining pulled the earliest loss date on the prevent plant paperwork which then excluded these losses from the application for the ERP. I want to emphasize again; this is an issue with all 13 AIP crop insurance carriers.
What we are doing:
ERP applications were in mailboxes on a Friday and by Monday our agents had found the issue. The missing lines are not universal and subjective by adjuster and by the cause of loss date they used. At that time, we let USDA, AIP’s, and local FSA know of the issue. They did not think it was an issue at the time since we were the only ones that had raised the issue. By that Friday it was a widely known issue. On Monday the 13th we had a follow-up call with Senator Hoeven’s office. They wanted clarification of the issue. They are in firm agreement with us that this issue should be resolved, and those losses should be counted toward ERP.
Senator Hoeven met with Secretary Vilsack that afternoon at 3:00PM to again raise the question on eliminating the late planting penalties, and to raise this new issue. We are of the position that if RMA data mines the notice of loss date instead of cause of loss date that it will fix the issue. If it gets fixed it will most likely be in phase 2. There is nothing the agency or FSA can do in the intern as they do not have a manual process of application. We just have to be patient and understand that we are leading the charge on fixing the issue.
AGI (Adjusted Gross Income) calculations
AGI – Background:
What is farming AGI? Technically it is not gross income from farming. It is the net income generated by the farm compared to all your other sources of income that is reported on your tax return. It is a three-year average of AGI. For the 2020 crop year it is years 2016-2018 and for 2021 it is years 2017-2019. You would compare the average of those three years of Farm AGI to the total Average AGI. If this number is greater than 75%, you qualify for the higher payment cap. If lower, you do not.
The entity can qualify but then each owner must qualify. For example, if Farm LLC has four equal owners and two owners have more than 75% of their AGI from farming and two don’t, then the extra $125,000 payment limit will be capped at $62,500.
The most difficult provision for CPAs and Attorneys deals with gains from equipment sales. There is a special rule that requires that farm income is more than 66.66% of overall AGI before you can include equipment gains. This can bounce out including this income in many situations especially tax years 2018 and later when trade-ins are now taxable. The examples in the handbook are vague at best and a CPA and attorney need to use their judgement in determining whether these gains qualify or not.
Simplified is that the 2017 tax cut bill changed the way to account for machinery trades and sales. The FSA manual for calculating AGI is based off the 2008 tax laws.
The confirmation from the local state office is that if your overall AGI and farm AGI is negative, then you don’t qualify for the extra payment. This is based on the interpretation from the old WHIP+ rules which then became ERP.
What we are doing:
On Tuesday the 14th we were asked to join a conference call with Paul Neiffer (CPAtoday) and Jeff Harrison (DC Lobbyist) to better understand the issue facing the AGI limits. Now that we have a better understanding of the issue, we will lobby for FSA to update their manuals and clarify their calculation of AGI. On the issue of negative AGI, since it was used in WHIP and confirmed for ERP, I think this issue would be a lot heavier lift. For now, we will concentrate on the calculation of equipment trades.
As always feel free to call or email with any questions. We are here to help!