§ 1308–1. Prevention of Creation of Entities to Qualify as Separate Persons; Payments Limited to Active Farmers

(a) Prevention of creation of entities to qualify as separate persons

     For the purposes of preventing the use of multiple legal entities to avoid the effective application of the payment limitations under section 1308 of this title:

(1) In general

     A person (as defined in section 1308(5)(B)(i) of this title) that receives farm program payments (as described in paragraphs (1) and (2) of this section as being subject to limitation) for a crop year may not also hold, directly or indirectly, substantial beneficial interests in more than two entities (as defined in section 1308(5)(B)(i)(II) of this title) engaged in farm operations that also receive such payments as separate persons, for the purposes of the application of the limitations under section 1308 of this title. A person that does not receive such payments for a crop year may not hold, directly or indirectly, substantial beneficial interests in more than three entities that receive such payments as separate persons, for the purposes of the application of the limitations under section 1308 of this title.

(2) Minimal beneficial interests

     For the purpose of this subsection, a beneficial interest in any entity that is less than 10 percent of all beneficial interests in such entity combined shall not be considered a substantial beneficial interest, unless the Secretary determines, on a case-by-case basis, that a smaller percentage should apply to one or more beneficial interests to ensure that the purpose of this subsection is achieved.

(3) Notification by entities

     To facilitate administration of this subsection, each entity receiving such payments as a separate person shall notify each individual or other entity that acquires or holds a substantial beneficial interest in it of the requirements and limitations under this subsection. Each such entity receiving payments shall provide to the Secretary of Agriculture, at such times and in such manner as prescribed by the Secretary, the name and social security number of each individual, or the name and taxpayer identification number of each entity, that holds or acquires a substantial beneficial interest.

(4) Notification of interest

(A) In general

     If a person is notified that the person holds substantial beneficial interests in more than the number of entities receiving payments that is permitted under this subsection for the purposes of the application of the limitations under section 1308 of this title, the person immediately shall notify the Secretary, designating those entities that should be considered as permitted entities for the person for purposes of applying the limitations. Each remaining entity in which the person holds a substantial beneficial interest shall be subject to reductions in the payments to the entity subject to limitation under section 1308 of this title in accordance with this subparagraph. Each such payment applicable to the entity shall be reduced by an amount that bears the same relation to the full payment that the person’s beneficial interest in the entity bears to all beneficial interests in the entity combined. Before making such reductions, the Secretary shall notify all individuals or entities affected thereby and permit them to adjust among themselves their interests in the designated entity or entities.

(B) Notice not provided

     If the person does not so notify the Secretary, all entities in which the person holds substantial beneficial interests shall be subject to reductions in the per person limitations under section 1308 of this title in the manner described in subparagraph (A). Before making such reductions, the Secretary shall notify all individuals or entities affected thereby and permit them to adjust among themselves their interests in the designated entity or entities.

(b) Payments limited to active farmers

(1) In general

     To be separately eligible for farm program payments (as described in paragraphs (1) and (2) of section 1308 of this title as being subject to limitation) with respect to a particular farming operation (whether in the person’s own right or as a partner in a general partnership, a grantor of a revocable trust, a participant in a joint venture, or a participant in a similar entity (as determined by the Secretary) that is the producer of the crops involved), a person must be an individual or entity described in section 1308(5)(B)(i) of this title and actively engaged in farming with respect to such operation, as provided under paragraphs (2), (3), and (4).

(2) General classes actively engaged in farming

     For the purposes of paragraph (1), except as otherwise provided in paragraph (3):

(A) Individuals

     An individual shall be considered to be actively engaged in farming with respect to a farm operation if—

     (i) the individual makes a significant contribution (based on the total value of the farming operation) of—

(I) capital, equipment, or land; and

(II) personal labor or active personal management;

to the farming operation; and

     (ii) the individual’s share of the profits or losses from the farming operation is commensurate with the individual’s contributions to the operation; and

     (iii) the individual’s contributions are at risk.

(B) Corporations or other entities

     A corporation or other entity described in section 1308(5)(B)(i)(II) of this title shall be considered as actively engaged in farming with respect to a farming operation if—

     (i) the entity separately makes a significant contribution (based on the total value of the farming operation) of capital, equipment, or land;

     (ii) the stockholders or members collectively make a significant contribution of personal labor or active personal management to the operation; and

     (iii) the standards provided in clauses (ii) and (iii) of paragraph (A), as applied to the entity, are met by the entity.

(C) Entities making significant contributions

     If a general partnership, joint venture, or similar entity (as determined by the Secretary) separately makes a significant contribution (based on the total value of the farming operation involved) of capital, equipment, or land, and the standards provided in clauses (ii) and (iii) of paragraph (A), as applied to the entity, are met by the entity, the partners or members making a significant contribution of personal labor or active personal management shall be considered to be actively engaged in farming with respect to the farming operation involved.

(D) Equipment and personal labor

     In making determinations under this subsection regarding equipment and personal labor, the Secretary shall take into consideration the equipment and personal labor normally and customarily provided by farm operators in the area involved to produce program crops.

(3) Special classes actively engaged in farming

     Notwithstanding paragraph (2), the following persons shall be considered to be actively engaged in farming with respect to a farm operation:

(A) Landowners

     A person that is a landowner contributing the owned land to the farming operation if the landowner receives rent or income for such use of the land based on the land’s production or the operation’s operating results, and the person meets the standard provided in clauses (ii) and (iii) of paragraph (2)(A).

(B) Family members

     With respect to a farming operation conducted by persons, a majority of whom are individuals who are family members, an adult family member who makes a significant contribution (based on the total value of the farming operation) of active personal management or personal labor and, with respect to such contribution, who meets the standards provided in clauses (ii) and (iii) of paragraph (2)(A). For the purposes of the preceding sentence, the term "family member" means an individual to whom another family member in the farming operation is related as lineal ancestor, lineal descendant, or sibling (including the spouses of those family members who do not make a significant contribution themselves).

(C) Sharecroppers

     A sharecropper who makes a significant contribution of personal labor to the farming operation and, with respect to such contribution, who meets the standards provided in clauses (ii) and (iii) of paragraph (2)(A).

(4) Persons not actively engaged in farming

     For the purposes of paragraph (1), except as provided in paragraph (3), the following persons shall not be considered to be actively engaged in farming with respect to a farm operation:

(A) Landlords

     A landlord contributing land to the farming operation if the landlord receives cash rent, or a crop share guaranteed as to the amount of the commodity to be paid in rent, for such use of the land.

(B) Other persons

     Any other person, or class of persons, determined by the Secretary as failing to meet the standards set out in paragraphs (2) and (3).

(5) Custom farming services

     A person receiving custom farming services will be considered separately eligible for payment limitation purposes if such person is actively engaged in farming based on paragraphs (1) through (3). No other rules with respect to custom farming shall apply.

(6) Growers of hybrid seed

     To determine whether a person growing hybrid seed under contract shall be considered to be actively engaged in farming, the Secretary shall not take into consideration the existence of a hybrid seed contract.

(Pub. L. 99–198, title X, § 1001A, as added and amended Pub. L. 100–203, title I, §§ 1301(a)(3), 1302, Dec. 22, 1987, 101 Stat. 1330–12, 1330–14; Pub. L. 101–624, title XI, § 1111(d), (f), Nov. 28, 1990, 104 Stat. 3498, 3499; Pub. L. 102–237, title I, § 118(c), Dec. 13, 1991, 105 Stat. 1841; Pub. L. 104–127, title I, § 115(c)(1), Apr. 4, 1996, 110 Stat. 903.)

Codification

     Section was enacted as part of the Food Security Act of 1985, and not as part of the Agricultural Adjustment Act of 1938 which comprises this chapter.

     1996—Subsec. (a)(1). Pub. L. 104–127, § 115(c)(1)(A), struck out "under the Agricultural Act of 1949 (7 U.S.C. 1421 et seq.)" before "may not also hold".

     Subsec. (b)(1). Pub. L. 104–127, § 115(c)(1)(B), struck out "under the Agricultural Act of 1949" before "with respect to a particular".

     1991—Subsec. (a)(2). Pub. L. 102–237 struck out "0 to" after "less than".

     1990—Subsec. (a)(2). Pub. L. 101–624, § 1111(f), substituted "0 to 10 percent" for "10 percent".

     Subsec. (b)(6). Pub. L. 101–624, § 1111(d), added par. (6).

     1987—Subsec. (b). Pub. L. 100–203, § 1302, added subsec. (b).

     Amendment by Pub. L. 101–624 effective beginning with 1991 crop of an agricultural commodity, with provision for prior crops, see section 1171 of Pub. L. 101–624, set out as a note under section 1421 of this title.

     Section 1302 of Pub. L. 100–203 provided that the amendment made by that section is effective beginning with 1989 crops.

     Section 1301(a) of Pub. L. 100–203 provided that this section is effective beginning with 1989 crops.

     This section is referred to in sections 1308, 1308–2, 1308–4, 7215 of this title.