By Allen H. Olson, Attorney at Law
Farmers and their lenders frequently take federal farm program payments for granted. Farmers will often slap an FSA 502 together the day before the first program payment becomes available in the spring. The 502 may contain incorrect or incomplete information. Lenders will file a financing statement perfecting a lien on program payments without making a determination that the farmer has satisfied the regulatory requirements necessary to receive such payments. These lenders may ultimately find that there are no payments to which their lien can attach.
Program compliance is most crucial for larger operations that seek to receive multiple program payments. Federal law limits the dollar amounts that can be received by each farming individual or entity. However, the law also permits farming operations composed of more than one individual or entity to receive multiple payments if the operations satisfy certain requirements. These requirements, set out in various farm bills, in USDA regulations, and in an FSA guidance document known as 1-PL, are extremely complicated and easy to violate.
There are many payment limitation rules that can trip up even the best intentioned farmers. There are special rules for husbands and wives who farm together and rules governing how loans must be structured in a multiple payment operation. The "three-entity rule" limits the number of payments that can be received from corporations and limited liability companies and spells out how those entities must be structured. The substantive change rules governing the addition of payment limits to an existing operation are particularly tricky.
Farmers often rely on advice from their County FSA Office in complying with payment limitation requirements. This would seem logical on its face but in fact may be dangerous. USDA has conducted no county level payment limitations training since the 1980''s. Posing a complicated payment limitations question to twelve different FSA offices will likely produce twelve different answers.
2004 saw a substantial increase in USDA audits of multiple payment farms in Georgia. The audits are conducted initially by review committees made up of FSA employees from counties other than the county where the farm is located. The review process can then proceed to the State FSA Office and to Washington. When the auditors discover violations, saying that the County Office told me to do it that way is generally not a defense.
Violating payment limitations rules can have severe consequences. Some or all program payments may be lost for the current crop year. Payments received in prior crop years may have to be refunded. A farmer may also be barred from receiving any future payments. In extreme cases, the USDA Office of Inspector General may seek criminal prosecution.
Farmers can limit their risk of losing payments or worse by engaging competent legal counsel to help them structure their operations in accordance with the regulations, to assist them in filling out their 502 forms properly and to advise them on how to keep their operations in compliance throughout the crop year. The phrase "you can pay me now or pay me later" applies equally to lawyers and auto mechanics. Staying out of payment limitations trouble by good planning now is much easier and less expensive than getting out of trouble later.
Allen H. Olson is an attorney with Moore Clarke DuVall & Rodgers, P.C. Mr. Olson's practice focuses exclusively on agricultural law including federal farm programs, payment limitations, perishable agricultural commodities, conservation easements and other agricultural law issues. The firm has offices in Valdosta, Albany, and Atlanta. Mr. Olson can be reached at 229-888-3338.
This article contains general information only and should not be relied on in place of formal legal advice received from a lawyer retained by the reader.