While primarily known for making many of the 2018 Trump tax cuts permanent, PL 119-21 (commonly known as the One Big Beautiful Bill) brought welcome simplification to structuring farming operations for working with the Farm Service Agency.
Farm Service Agency (FSA) programs such as Price Loss Coverage and Agricultural Risk Coverage provide a much-needed safety net for farmers against risks like an unexpected drop in crop prices or a down crop year. These subsidies include payment limitations based on the number of persons “actively engaged in farming”. Prior to PL 119-21, corporations and limited liability companies were treated as one person regardless of the number of owners in the entity, leaving general partnerships as the only legal entity available for farmers who wanted to organize their farm operation without losing their existing subsidies.
While general partnerships allow multiple individuals to be considered “actively engaged in farming” it lacks the liability protection of most other legal entities, meaning personal assets are at risk of being used to satisfy liabilities of the business. The only way to provide farmers with protection for personal assets prior to PL 119-21 was to have each partner of the farming operation form a single owner limited liability company to hold their interest in the partnership. While this helped address the liability issue, it meant adding another layer of entities, maintain records for each LLC, and keeping each LLC active with the Secretary of State.
PL 119-21 replaces general partnerships with the term “qualified pass through entity” which opens up the use of limited liability companies (so long as they are not taxed as a c-corporation) as well as corporations making an s-election. This allows farmers to set up just one entity without worrying about a lack of liability protection or reducing the FSA payment limitations.
For existing farming operations, this development doesn’t mean that you need to discard your existing entity to form a new LLC, transfer over assets, and establish a new EIN. General Partnerships can file articles of conversion to change their legal form while maintaining ownership of existing assets and continuing with the same EIN. During that conversion process, the single member LLCs could also be phased out to condense the operation to just one entity.
If you have any questions surrounding structuring your farm entity, give us a call at 765.423.7900 or send us an email at info@gutweinlaw.com.
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