Machinery Sharing Agreements and
USDA Commodity Payment Eligibility

USDA commodity payment limitations apply to each individual “person.”

Limitations:

  • Loan Deficiency Payments $75,000
  • Counter-cyclical payments $65,000
  • Direct payments $40,000

A “person” can be:

  • An individual (including both spouses)
  • A limited partnership
  • A limited liability partnership (LLP) or company (LLC)
  • A corporation, joint stock company or association
  • A trust, estate or charitable organization
  • A government agency
  • Note—an ordinary partnership does not qualify. In a general partnership each member may qualify as a person.

The “person” must be “actively engaged in farming,” which is defined as contributing:

  • “Significant contributions of land, capital, or equipment or a combination of all three.”
  • “…and active personal labor or active personal management or a combination of both.”
  • “Contributions must be at risk and commensurate with the claimed share of profits and/or losses of the farming operation.”

Implications:

  • Sharing machinery ownership and labor between two or more persons acting individually or in a partnership organization does not generally affect eligibility for USDA commodity payments, providing each person or partner is making commensurate contributions. Payments may be made to the partnership, but each partner maintains his/her payment limitation.
  • Owning machinery jointly in an LLC or other farming entity that meets the “person” definition that does not own or rent land does not affect eligibility for USDA commodity payments. The individual or entity earning payments would have to lease the machinery from the LLC or other entity, for the machinery to be considered as a contribution to the farming operation by the individual or entity conducting the farming operation. If both hired labor and leased machinery (i.e. custom farming) are provided by the LLC to the individual or entity conducting the farming operation, payments would almost certainly be reduced if there is any cash rented land in the farming operation (cash rent tenant rule).
  • If an LLC or other farming entity meets the definition of a “person” and owns or rents land, the entity is entitled to one payment limitation. An individual who owns more than a 50 % interest in the entity still has only one payment limitation. (i.e. the total of any payments received as an individual plus payments to the entity are combined under one limitation). If an individual owns 50 % or less of another entity (excluding partnerships), he or she is eligible for two payment limitations, one as an individual and one as part of the entity.  
  • Individuals may not receive payments through more than 3 entities (including themselves personally).