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[Federal Register Volume 75, Number 4 (Thursday, January 7, 2010)]
[Rules and Regulations]
[Pages 887-901]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: X10-10107]

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Rules and Regulations
                                                Federal Register
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Federal Register / Vol. 75, No. 4 / Thursday, January 7, 2010 / Rules 
and Regulations

[[Page 887]]

DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR 1400

RIN 0560-AH85

Payment Eligibility and Payment Limitation; Miscellaneous 
Technical Corrections

AGENCY: Commodity Credit Corporation and Farm Service Agency, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Commodity Credit Corporation (CCC) is amending the 
regulations that specify payment eligibility and payment limitation 
requirements for participants in CCC-funded programs. The amendments 
made in this rule address comments received on the interim rule and 
make minor technical corrections. This rule will apply to 2010 and 
subsequent crop, program, or fiscal year payments for participants in 
CCC-funded programs.

DATES: Effective Date: This rule is effective January 7, 2010.

FOR FURTHER INFORMATION CONTACT: James Baxa, Production, Emergencies 
and Compliance Division, FSA, USDA, telephone: (202) 720-3463. Persons 
with disabilities who require alternative means for communication 
(Braille, large print, audio tape, etc.) should contact the USDA Target 
Center at (202) 720-2600 (voice and TDD).

SUPPLEMENTARY INFORMATION:

Background

    CCC published an interim rule on December 29, 2008 (73 FR 79267-
79284) implementing the payment eligibility and payment limitation 
provisions from the Food, Conservation, and Energy Act of 2008 (Pub. L. 
110-246, the 2008 Farm Bill) that are applicable to most CCC and FSA 
commodity, price support, and conservation programs. The rule included 
specific payment limits for affected programs, provisions for how 
payments are attributed to individuals, average Adjusted Gross Income 
(AGI) limitation requirements for payment recipients, and other 
eligibility criteria that included actively engaged in farming 
requirements and provisions for minors. It included provisions that 
certain CCC farm program payments will be made only to persons and 
legal entities actively engaged in farming, as evidenced by 
contribution of land, capital, or equipment and labor or management to 
the farming operation. The majority of the provisions in the rule were 
requirements of the 2008 Farm Bill for which USDA had little or no 
discretion.
    The comment period for the rule closed on January 28, 2009. CCC 
received comments requesting that the comment period be reopened. CCC 
reopened the comment period until April 6, 2009 (74 FR 6117). In 
response to the interim rule, CCC received 5,060 comments, including 
comments from producers, commodity groups, cooperatives, producer 
associations, lenders, crop consultants, certified public accountants, 
attorneys, members of Congress (both House and Senate), State 
agricultural officials, crop insurance agents, dairy farmers, cotton 
processors, organic and sustainable crop producers, commodity brokers, 
the USDA Office of the Inspector General, USDA agencies and employees, 
teachers, animal scientists, farm implement dealers, taxpayers, and a 
restaurant chef. The majority of comments raised questions or concerns 
about specific parts of the rule. The rest of the comments either 
supported parts of the rule or raised general policy issues about farm 
programs. Seventy-three percent of the comments stated that the payment 
eligibility rules need to be made more restrictive, particularly in the 
area of the requirements of active personal management; two percent 
asked for an exception for smaller farming operations.
    This rule specifies that for most types of legal entities, the 
requirement that all partners, stockholders, or members must provide 
active labor or management does not apply if: (1) Interest holders who 
collectively hold at least 50 percent interest in the legal entity are 
providing personal labor or active personal management; and (2) they 
all are receiving, directly or indirectly, total payments less than one 
payment limitation. This was added to address the comments that the 
restrictions intended to end abusive practices by passive investors 
should not negatively impact smaller family farming operations where 
older members may not be active contributors. It is a change from the 
interim rule that required all partners, stockholders, and members in a 
legal entity to provide active personal labor or management for the 
legal entity to be eligible for 100 percent of the payment otherwise 
due the legal entity.
    Also, in response to comments, this rule makes minor clarifications 
to ensure that the rule is clear and consistent with our handbook and 
with our current practice. This rule clarifies that ``actively engaged 
in farming'' provisions do not apply to Conservation Reserve Program 
contracts and extensions to such contracts made effective on or after 
October 1, 2008. It clarifies that determinations for joint operations 
with six or more members will be made by the FSA State office. It 
clarifies that certain ``actively engaged in farming'' requirements for 
a person can be met if the spouse of that person meets the 
requirements. It clarifies that for a change to a farming operation to 
be considered bona fide, one rather than all of the items in the list 
of bona fide changes must be met. It changes the April 1 date in the 
minor child provisions to the same June 1 date used for attribution of 
payments. This is for consistency since the manner in which payments 
will be attributed for payment limitation purposes depends in part on 
whether or not a participant is a minor. It clarifies the provisions 
for trusts and estates to make them consistent with the other sections 
regarding requirements for contributions. These changes to the rule are 
expected to have no substantive impact.
    This rule also implements minor technical corrections, such as 
correcting internal paragraph references and inconsistent terminology, 
which are expected to have no substantive impact. Some of these changes 
were made in response to comments received; others were the result of 
our own review of the regulation for clarity and consistency. This rule 
amends 7 CFR part 1400 to implement these changes.

[[Page 888]]

Discussion of Comments

    The following provides a summary of the comments received that were 
related to each specific subpart or section and the agency's response, 
including changes we are making to the regulations.

Subpart A--General Provisions

    The following discussion addresses the comments received on Subpart 
A identified by section.

Sec. 1400.1 Applicability

    Comment: Wealthy farmers do not need payments. Put a cap of $25,000 
for total payments.
    Response: The limitations on payments per person or legal entity 
for the applicable period for the various CCC and FSA programs are 
specified in the 2008 Farm Bill. Therefore, we did not make any changes 
to the rule in response to the comment suggesting a $25,000 cap.
    Regarding payments to wealthy farmers, as provided in the 2008 Farm 
Bill and in Sec.  1400.500 of the regulations, persons and legal 
entities who exceed certain average AGI limits are not eligible for any 
payments or benefits for the programs specified in this section; and 
the average AGI limits in the current regulations are lower than under 
the Farm Security and Rural Investment Act of 2002 (Pub. L. 107-171, 
commonly known as the 2002 Farm Bill). Therefore, we did not make any 
changes to the rule in response to the comment.
    Comment: The elimination of a limitation for the Marketing 
Assistance Loans (MAL) and Loan Deficiency Payments (LDP) payments is 
consistent with the statute, but opens a potential loophole.
    Response: A limitation is applied to a Marketing Loan Gain (MLG) 
and LDP, not MAL. In any case, as noted in the comment, the elimination 
of the cap on payments per person or legal entity for the applicable 
period for MLGs and LDPs is specified in the 2008 Farm Bill. Although 
there is now no limitation on MLGs and LDPs, persons receiving MLGs and 
LDPs are subject to other requirements in this part, including average 
AGI limitation provisions, so there are practical limits to how much a 
person or legal entity can qualify for while still having to meet the 
other requirements, particularly average AGI provisions. The 
regulations comply with the requirements in the 2008 Farm Bill; 
therefore, we did not make any changes to the rule in response to the 
comment.
    Comment: How will this apply to the Conservation Reserve Program 
(CRP)? Will FSA release these contracts if over half the ownership 
fails to qualify (due to AGI or actively engaged)? If so, what 
incentive is there to follow the conservation practices? The provisions 
in both Sec. Sec.  1400.1 and 1400.201 appear to require that a person 
be actively engaged in farming to be eligible to receive conservation 
benefits, which was not in the 2008 Farm Bill and therefore should not 
be in the rule.
    Response: We will make a technical correction to this section to 
clarify that ``actively engaged in farming'' provisions in the current 
regulations do not apply to CRP contracts and extensions to such 
contracts beginning October 1, 2008. CRP contracts are subject to the 
regulations in place at the time the contract was executed, so the 
payment limitation, ``actively engaged in farming,'' and average AGI 
limits in the current regulation do not apply to contracts executed 
prior to October 1, 2008. For contracts executed before that date, the 
regulations in the January 1, 2008 edition of the Code of Federal 
Regulations apply.
    The average AGI limitations in effect when the contract was signed 
apply to CRP, but those limitations apply only when the initial 
contract is made; if the person or legal entity's average AGI exceeds 
the limit in later years, they are still eligible for annual rental 
payments for the duration of that contract.
    Comment: The table that identifies payment limits identifies the 
Wetland Reserve Program (WRP) limit of $50,000. That is correct, but it 
needs a footnote that the payment limit does not apply to payments for 
perpetual or 30 year easements or under 30 year contracts.
    Response: We added that footnote in this rule.

Sec. 1400.2 Administration

    Comment: The interim rule should state specifically who will 
determine payment limitations and payment eligibility for a joint 
operation with six or more members.
    Response: The determination will be made by the FSA State office, 
as it has been made in the past. We clarified that in this rule.
    Comment: If people need to provide additional paperwork to FSA, 
allow them to withdraw their application for payment and resubmit; 
``stop'' the 60 day determination clock as specified in Sec.  
1400.2(f). This has been done sometimes in the past, but it would be 
appropriate to specify it in the rule.
    Response: This is and will continue to be our practice, and is 
specified in our handbook. Applicants have the option to withdraw or 
change their farm operating plan at any time. The 60 day determination 
provision in the rule requires the FSA county office to make a timely 
determination; it does not require the producer to submit documentation 
within 60 days. If an unfavorable determination is made, based on the 
documentation provided, a revised farm operating plan can be provided 
to the county office. No changes were made to the rule in response to 
this comment.

Sec. 1400.3 Definitions

    Some commenters support the changes to the definition of capital, 
and the provisions that require funding provided to a farming operation 
to be independent and separate from funding provided to all other 
farming operations, and requiring that a person or entity's 
contribution of capital be independent from others. They also support 
the clarification that advance program payments are not considered 
capital contributions, all the changes and recommend they stay in the 
final rule, and the definitions of contribution and joint operation.
    Comment: The definition of ``capital'' is fine, but it is not used 
consistently in Sec. Sec.  1400.202, 1400.203, and 1400.204, which 
appear to disqualify any land, equipment, or capital acquired with a 
loan.
    Response: The use of the term ``capital'' in sections Sec. Sec.  
1400.202, 1400.203, and 1400.204 is consistent with the way it is 
defined, including the provision that capital can include borrowed 
(loaned) funding. Sections 1400.202, 1400.203, and 1400.204 do further 
clarify appropriate loan terms, including guarantees and co-signers, 
for loans used for eligible ``actively engaged'' contributions of 
capital, land, and equipment. Those sections do not automatically 
disqualify all land, equipment, or capital acquired with a loan. No 
changes were made to the rule based on this comment.
    Comment: The rule is not consistent on using the term ``joint 
operation'' as defined. Sections 1400.6(a) and 1400.106(b), for 
example, use slightly different terms. Change the references to general 
partnerships or joint ventures in those sections to ``joint 
operation.''
    Response: We agree that the term ``joint operation'' should be used 
consistently. We will change Sec. Sec.  1400.6 and 1400.106 to use the 
term ``joint operation.''
    Comment: Change the definition of ``family member'' to include 
nieces and nephews. The definition will not allow some family members 
to be eligible, for example, a farmer will not be eligible for a direct 
payment if the farming partner

[[Page 889]]

is the spouse's uncle; the farmer is not a direct descendent.
    Response: The definition of family member in the rule is the 
definition that is required by the 2008 Farm Bill. The definition in 
the 2008 Farm Bill was clear and complete as written. Therefore, we did 
not make any changes to the rule in response to the comment.
    Comments: A more rigorous definition of active personal management 
is needed; too many people per legal entity are qualifying for payment 
eligibility based on only active personal management. Change the 
definition of ``active personal management'' to be a measurable, 
quantifiable standard. That term as it is further used in the 
definitions of ``contribution'' and ``significant contribution'' 
represents a potential loophole. Set a specific monetary or time 
requirement; ideally, 1000 hours or 50 percent of the total hours 
necessary to conduct a farming operation of comparable size.
    Add the words, ``on a regular, substantial, and continuing basis'' 
to the definition of ``active personal management,'' including ``day to 
day'' supervision and ``services including but not limited to 
significant on-site services.''
    Response: The definition of what constitutes a significant 
contribution is provided by regulation, not by statute and could be 
changed. We recognize the difficulty in determining the significance of 
a management contribution under the current definition and the 
desirability of a measurable, quantifiable standard. However, unlike 
labor, the significance of a management contribution is not 
appropriately measured by the amount of time a person spends doing the 
claimed contribution. The current regulatory definition of a 
significant contribution of active personal management has been in 
effect for over 20 years; Congress has not mandated a more restrictive 
definition during that time, including in the 2008 Farm Bill. However, 
we are currently exploring whether the current definition could be 
amended in a manner that would be fair, equitable, and enhance program 
integrity. At this time, no changes were made as the result of this 
comment and other related comments.
    Comment: Do not allow a combined contribution of labor and 
management to be counted as a ``significant contribution'' in the 
definition. Define both with a quantifiable standard.
    Response: A strict division of responsibilities between labor and 
management is not a realistic expectation for many smaller farming 
operations, where actively engaged members of the operation typically 
do a combination of both. A significant contribution by an actively 
engaged farmer often does include a combination of labor and 
management. No changes were made as a result of this comment.
    Comment: ``Commensurate'' is used throughout, but never defined. 
Since it is crucial to payment eligibility, need to define it.
    Response: ``Commensurate'' is not defined in this rule, because it 
is utilized based upon its common dictionary definition and is not used 
in a special way in the rule. When making a determination regarding 
commensurate contributions, we have not required and will not require 
that the contribution be exactly proportional to the ownership share. 
No changes were made to the rule as a result of this comment.

Sec. 1400.5 Denial of Program Benefits

    Comment: It is unfair to consider fallow land or land with no 
production as an example of a scheme or device. Sometimes producers 
make mistakes providing information. The current test for scheme or 
device in the regulation is too difficult to meet and is arbitrary and 
capricious.
    Response: Land where no crops are grown or commodities produced is 
provided as a factor in an example of a scheme or device in the rule. 
Also, it is listed as one indicator of a possible scheme or device; it 
has not and will not be used as the only proof that a scheme or device 
has occurred. The term ``fallow'' land did not appear in the previous 
rule or the preamble.
    The requirement to deny program benefits to persons who have 
participated in a scheme or device is in the 2008 Farm Bill, and the 
statute also gives the Secretary discretionary authority to decide what 
other serious actions merit denial of benefits. The expanded provisions 
on denial of benefits are consistent with the general policy of the 
2008 Farm Bill to tighten payment limits and payment eligibility. We 
agree with Congress that it is important to prevent taxpayer money 
being used to reward fraud, and particularly to prevent schemes such as 
``creating a business arrangement using rental agreements and other 
arrangements to conceal the interest of a person or legal entity in a 
farm or farming operation for the purpose of obtaining program payments 
the person or legal entity would otherwise not be eligible to 
receive.'' Therefore, we did not make any change to the rule in 
response to this comment.
    Comment: The section on submitting false information should include 
the words ``knowingly'' and ``intentionally,'' to make it clear that 
accidentally submitting wrong information will not be considered fraud.
    Response: The rule does refer to ``knowingly'' engaging in the 
creation of a fraudulent document. By dictionary definition, fraudulent 
means intentionally false. Therefore, we did not make any changes to 
the rule in response to the comment.

Sec. 1400.7 Commensurate Contributions and Risk

    Comment: Changing ``at risk'' to ``at risk for a loss'' is not 
supported by statute; it is unclear how a person's risk could be 
measured to determine whether it is commensurate to the claimed share 
of profits and losses. All members of a partnership are 100 percent 
liable for a loss. One partner may have substantially greater personal 
assets at risk outside the partnership than another partner.
    Response: This change was intended only to clarify that persons who 
share no risk in the crop are not eligible for payment; no one should 
be made eligible or ineligible by this wording change. Also, the 
dictionary definition of risk includes exposure to the chance of loss. 
Therefore, we did not make any changes to the rule in response to the 
comment.

Subpart B--Payment Limitation

    The following discussion addresses the comments received on Subpart 
B identified by section.

Sec. 1400.100 Revocable Trust

    Comments: What about revocable living trusts? The IRS does not 
recognize this as an entity with independent tax status, but USDA does, 
so a person can not qualify as actively engaged because land is leased 
through the trust, and a family member is the trustee.
    This rule can be read to require a living trust to be treated as an 
entity subject to its own payment limitation. There should be an 
exception for living trusts created by a husband and wife, where they 
are the sole beneficiaries, the trust uses one of their social security 
numbers, and the trust income is reported on their individual returns. 
It looks like this rule requires that with a trust, two people who 
would normally qualify for two payments would be eligible for only one 
payment, or be forced to apply as cash rent tenants on their own land.

[[Page 890]]

    Response: The 2008 Farm Bill clearly specifies that ``a revocable 
trust shall be considered to be the same person as the grantor of the 
trust,'' which is reflected in the rule. The tax status of such trust 
is irrelevant for the purposes of payment eligibility. We cannot 
attribute two payment limitations to one Social Security number. 
Therefore, we did not make any changes to the rule in response to the 
comment.

Sec. 1400.101 Minor Children

    Comment: The provision attributing payments received by a minor to 
the parent who receives the greater amount of farm payments exceeds the 
authority. The payments must be attributed equally to the parents, not 
to the one receiving the greater payments.
    Response: The 2008 Farm Bill requires that payments received by a 
child under the age of 18 be attributed to the parents of the child. It 
also authorizes the Secretary to ``issue regulations specifying the 
conditions under which the payments received by a child under the age 
of 18 will not be attributed to the parents of the child.'' The 2008 
Farm Bill does not require that the payments be attributed equally, and 
it gives the authority to set exceptions, so the regulation is within 
the authority. This provision prevents actions to evade the payment 
limitation provisions through manipulation of the attribution of 
payments received by minor children. Therefore, we did not make any 
changes to the rule in response to the comment.

Sec. 1400.102 States, Political Subdivisions, and Agencies Thereof

    Some commenters support the requirement that payments to States be 
used to support public schools.
    Comment: The 2008 Farm Bill allowed an exception to the payment 
limits for States with a population of less than 1,500,000. The rule 
should specify that.
    Response: We will add a provision to the rule specifying that the 
population will be determined using the most recent U.S. Census Bureau 
data, and specifying the 1,500,000 threshold. Using 2008 data, the list 
of States that meet the criteria are: Alaska, Delaware, Hawaii, Maine, 
Montana, North Dakota, New Hampshire, Rhode Island, South Dakota, 
Vermont, and Wyoming.
    Comment: States with populations greater than 1,500,000 should 
still be eligible for full benefits.
    Response: The 2008 Farm Bill states that States may receive direct, 
counter-cyclical, or Average Crop Revenue Election (ACRE) payments not 
to exceed $500,000, and that the payments may only be used to maintain 
a public school; there is an exception for States with a population 
less than 1,500,000. We do not have the authority to expand that 
exception to all States. Therefore, we did not make any changes to the 
rule in response to the comment.
    Comment: State lands should still be eligible for CRP.
    Response: CRP contracts are administered under the regulations in 
place when the contract was established. Any State lands already under 
a CRP contract approved prior to October 1, 2008 will remain subject to 
the rules in 7 CFR part 1400 in effect when the contract was approved. 
However, new contracts will be established under the current rules, and 
State lands will not be eligible for new CRP enrollments or extensions. 
We did not make any changes to the rule in response to the comment.

Sec. 1400.104 Changes in Farming Operations

    Comment: For a farming operation of economically viable size, the 
requirement to add twenty percent base acres in order to qualify 
another family member will require adding hundreds of acres to the 
farm. This is an unreasonable hardship.
    Response: As stated in the preamble to the previous publication of 
the payment eligibility and limitation rule, additional persons or 
legal entities beyond one for payment limitation purposes may be 
recognized if an FSA State office specialist determines that the 
increase in base acres was of a magnitude that would support further 
additions to the farming operation of persons or legal entities for 
payment limitation purposes. Also, the ``substantive change'' 
provisions were announced well in advance of the 2009 crop year, so 
that operations would have time to adjust. As specified, the addition 
of a family member to a farming operation will be considered a bona 
fide and substantive change if they also meet the ``actively engaged in 
farming'' requirements of Sec.  1400.208. One, not all, of the bona 
fide changes listed in the rule must occur for the change to be 
considered bona fide; we changed the rule to make it clearer that the 
list of changes considered bona fide is an ``or'' list, not an ``and'' 
list.
    Comment: Is ``amount'' of equipment or land transferred a dollar 
value or the number of pieces of equipment or acres of land? Specify 
which it is in the rule.
    Response: The regulation also refers to fair market value, so the 
regulation is already clear that dollar value is meant. Therefore, we 
did not make any changes to the rule in response to the comment.
    Comments: Several comments address the issue of substantive change, 
and seller financing, when the buyer or new partner is a non-family 
member. Prohibiting seller financing of land or equipment is unduly 
burdensome. The use of seller financing is a key component of 
succession planning and is critical in attracting young and beginning 
farmers. In many cases, this provision will eliminate the ability of 
beginning farmers an opportunity to enter farming.
    For example, if a 67-year-old farmer tries to get a new farmer 
started to take over the farm, the new farmer is likely to be young and 
have little capital. If they start as partners, this will be a problem 
under the substantive change rule. If the farmer is only getting one-
third of the maximum payment, why is there a problem adding a new 
person? The rules should be waived for persons who are not near the 
payment limit.
    Another example is a farmer planning to retire who wants to add a 
niece's husband to the farm. He is not a direct descendent. Why must 
the farmer lose half the farm payment, which is only a third of the 
maximum payment anyhow, for helping a new farmer?
    This prevents a farmer from buying out his neighbor if there is any 
kind of seller financing. This is unduly restrictive.
    Response: The previous rule did not change the provisions about 
seller financing when the buyer or new partner is a non-family member; 
the provisions have been substantially similar for the past twenty 
years. FSA is not prohibiting seller financing; it is merely setting 
the regulations for the changes to the farming operation that will 
justify payment eligibility for another person or legal entity. We did 
not make any changes to the rule in response to the comments.
    Comment: Add a clause in Sec.  1400.104(a)(3)(ii) that the FSA 
State office makes the substantive determination that the change 
supports additional persons or entities to the farming operation 
``based solely on the expectation to benefit from the commercial 
success of the farming operation.'' In other words, the change should 
be obviously to increase the profits of the farming operation, not just 
to maximize government payments.
    Response: The purpose of Sec.  1400.104 is to specify that 
substantive changes to the farming operation must in fact be bona fide 
and substantive to change the payment eligibility for the operation. 
The 2008 Farm Bill requires these provisions. It does not specify that 
the change must also be financially prudent; that change would exceed 
our

[[Page 891]]

discretionary authority. The payment limitations regulations are 
intended to limit farm program payments to persons and legal entities 
actively engaged in farming and with average AGI below certain 
thresholds, rather than to limit payments to financially prudent 
persons and legal entities. Therefore, we did not make any changes to 
the rule in response to the comment.
    Comment: We strongly support the changes in Sec.  1400.104(a)(4) 
and (a)(5), which end some abusive sales and gifts practices formerly 
used to dodge the payment limits. To further strengthen these 
paragraphs, add that the former owner has ``no direct or indirect 
control.''
    Response: We will make this change to the rule.

Sec. 1400.105 Attribution of Payments

    Comment: Under IRS tax law, a C corporation is taxed as a separate 
entity, and tax liability does not extend to stockholders. How can USDA 
legally attribute payments to a corporation to the stockholders? C 
corporations are not ``pass through'' entities.
    Response: The 2008 Farm Bill specifically requires that 
``attribution of payments made to legal entities be traced through four 
levels of ownership in legal entities.'' The tax status of an entity is 
irrelevant for the purposes of attribution of payments. Therefore, we 
did not make any changes to the rule in response to the comment.
    Comment: Charitable organizations do not necessarily have members 
or owners. Add a new paragraph saying that if the charity does not have 
members or owners, the payment will be attributed as if it had one 
member, itself.
    Response: That is how payments to a charitable organization will be 
attributed under the current regulations. Therefore, we did not make 
any changes to the rule in response to this comment.

Subpart C--Payment Eligibility

    The following discussion addresses the comments received on Subpart 
C by section.

Sec. 1400.201 General Provisions for Determining Whether a Person or 
Legal Entity Is Actively Engaged in Farming

    Some commenters support the addition of ``and separately,'' and 
similar language, as well as the requirement that the risk be 
commensurate with the share of the operation.
    Comment: Remove the ``actively engaged in farming'' provisions. 
Farming operations members that have outside jobs cannot work on the 
farm, but the money from FSA programs helps hire farm hands and buy new 
equipment, helping the local economy.
    Response: The 2008 Farm Bill requires that actively engaged in 
farming is an eligibility requirement for certain payments. Therefore, 
we did not make any changes to the rule in response to the comment.
    Comment: The requirements in Sec. Sec.  1400.105 and 1400.204 
requiring separate, distinct, identifiable, and documentable 
contributions, and similar provisions, are not realistic given the ways 
farms really operate and discriminate against spouses. Decisions and 
workloads are typically shared by family members on a family farm, and 
it is hard to separate one person's contribution. The ``independently 
and separately,'' ``separate and distinct,'' etc. requirements for 
contributions in this section are confusing, possibly redundant, and 
likely to be inconsistently applied at the local level. Also, it 
appears to be more restrictive than was required by the 2008 Farm Bill.
    Response: The 2008 Farm Bill requires us to determine whether 
someone is actively engaged in farming based on their contributions to 
the farming operation and their share of the profits or losses, 
``commensurate with the contributions of the person to the farming 
operation.'' To determine whether a person's contributions and share of 
the profits and losses are commensurate with their contributions, we 
need to know what their separate, distinct, identifiable, and 
documentable contributions are. In other words, we need to know what 
specific contributions they made in order to verify that they are 
actively engaged in farming, and the specific contributions must be 
documentable. With regards to spouses, as specified in Sec.  1400.202, 
if one spouse is actively engaged in farming, the other is considered 
to have made a contribution of labor or management to that farming 
operation. The 2008 Farm Bill requires us to have actively engaged in 
farming as an eligibility requirement for certain payments. Therefore, 
we did not make any changes to the rule in response to the comment.
    Comment: Require a person to actually work on a farm to be an 
``active farmer.'' Do not let insurance policyholders and corporate 
staff receive payments. A conference call is not farming.
    Response: The 2008 Farm Bill requires us to have actively engaged 
in farming as an eligibility requirement for certain payments. Personal 
labor contributed to a farming operation would, by its nature, require 
that the person actually work on the farm. However, in lieu of a 
significant contribution of personal labor, the statute also allows a 
significant contribution of active personal management. Management 
encompasses more than on-site supervision; therefore, it would be 
overly restrictive and not supported by statute to make the change 
suggested by the comment. However, we are currently exploring whether 
the current definition could be amended in a manner that would be fair, 
equitable, and enhance program integrity. Therefore, we did not make a 
change to the rule in response to this comment and other related 
comments.
    Comment: Except for the spouse provisions, the changes to the 
actively engaged provisions are not required by the 2008 Farm Bill. 
Withdraw them, or at least delay implementation. Implement the 2008 
Farm Bill that reflects the intent of Congress, no more, no less. 
Congress could have directed USDA to change the definition of actively 
engaged, but they did not. They had every opportunity, but chose not 
to, so it is clear the congressional intent was not to change the 
actively engaged provisions. So, withdraw the entire actively engaged 
changes.
    Response: The provisions in this rule do not exceed our 
discretionary authority and are within the provisions set by the 2008 
Farm Bill, which does in fact amend the provisions for what constitutes 
``actively engaged in farming.'' We did comply with the requirements of 
the 2008 Farm Bill; as discussed in further detail in a response to a 
comment on Sec.  1400.204, we did provide an exception to the 
requirement that all stockholders or members in a legal entity such as 
a corporation must contribute personal labor or active personal 
management.
    Comment: Payments should only go to people who are resident farmer 
operators; people who perform on a regular basis the day-to-day work of 
that farm unit, or someone who previously farmed that unit and is now 
renting it out on a crop share basis. Off-farm owners should not be 
eligible, even if they provide off-site management or supervision.
    Response: The suggested change is beyond our statutory authority. 
As indicated previously, we are exploring whether the current 
definition of a significant contribution of active personal management 
could be amended in a manner that would be fair, equitable, and enhance 
program integrity. Therefore, we did not make a

[[Page 892]]

change to the rule in response to this comment and other related 
comments.
    Comment: If one spouse is actively engaged, the other should 
automatically qualify, whether the land is owned or rented.
    Response: Section 1400.202 specifies that if one spouse, or an 
estate of a deceased spouse, is determined to be actively engaged in 
farming, the other spouse is considered to have made a significant 
contribution of active personal labor or management, only to the same 
farming operation. This is not to say that the spouse will 
automatically meet the other requirements of being actively engaged in 
farming; contributions of land, capital, or equipment are generally 
also required to qualify as actively engaged in farming. There is no 
difference if the land is owned or rented with respect to spousal 
eligibility. The 2008 Farm Bill requires us to have actively engaged in 
farming as an eligibility requirement. Therefore, we did not make any 
changes to the rule in response to the comment.

Sec. 1400.202 Persons

    Some commenters strongly support the ``independently and 
separately'' language.
    Comments: Under the old ``3 entity'' rule, many farms set up 
complex corporate structures to maintain eligibility. Now, they are 
being penalized and spouses will not be eligible. Delay the rule so 
that people have time to meet the new rules. For example, some farmers 
organized their family business around the 3 entity rule. More time is 
needed to adjust to the new rules. Also, a ``farm wife'' should be 
automatically considered to have made a separate and distinct 
contribution. Equal spousal qualification rules should apply regardless 
of the operation's legal structure.
    The provision for spouses discriminates against spouses who operate 
as part of an entity or corporation. All spouses of actively engaged 
producers should be considered actively engaged.
    Response: Equal spousal qualification rules do apply regardless of 
the operation's legal structure, as specified in further detail in our 
handbooks. We cannot delay implementation of the rule. We do not agree 
that the rule penalizes spouses in a farming operation. The previous 
rule included a provision by which if one spouse is determined to be 
actively engaged in farming, the other spouse is credited for the 
purposes of payment eligibility with making significant contributions 
of active personal labor or active personal management to the farming 
operation. While each spouse may now have their own respective 
limitation, each must also meet applicable program and payment 
eligibility requirements to receive program benefits. This is not to be 
construed as meaning if one spouse qualifies for payment, the other 
automatically qualifies as well. As previously mentioned, both spouses 
must make significant and requisite contributions to the farming 
operation that are commensurate with their claimed shares to be 
considered actively engaged in farming and eligible for program 
benefits. We did not make a change to the rule in response to this 
comment; we have further clarified in our handbooks that spouse 
qualification rules apply regardless of the operation's legal 
structure.
    Comment: The provision for spouses discriminates against single 
people.
    Response: The provisions for spouses are as required by the 2008 
Farm Bill. Therefore, we did not make any changes to the rule in 
response to the comment
    Comment: To preserve the long term viability of the soil, eligible 
persons should be owners of the property that they farm and for which 
they are receiving payments.
    Response: The 2008 Farm Bill does not restrict eligibility to 
landowners although specific provisions for landowners are provided. 
Therefore, we did not make any changes to the rule in response to the 
comment.
    Comment: If a spouse has arthritis and can not perform labor or 
management, does that impact eligibility under CRP? It appears that the 
rule discriminatory towards people with health issues.
    Response: Under the provisions of this rule, if one spouse is 
determined to be actively engaged in farming, the other spouse is 
credited for the purposes of payment eligibility with making 
significant contributions of personal labor or active personal 
management to the farming operation. In any case, actively engaged in 
farming provisions do not apply to CRP contracts approved on or after 
October 1, 2008. We did not make any changes to the rule in response to 
the comment.
    Comment: The exemption for minor children for actively engaged 
should also apply to retired parents.
    Response: There is no exemption for minor children for actively 
engaged in farming in 7 CFR part 1400. This rule changes Sec.  1400.203 
to clarify that at least 50 percent, rather than all, of the members, 
partners, or stockholders in an entity must make a contribution for the 
members, partners, or stockholders of the joint operation to be 
considered actively engaged. That provision may help retired parents in 
a family entity qualify for payment.
    Comment: The spouse provision should make it clear that the 
spouse's active engagement will be considered to be ``commensurate'' 
with their interest. Also, it should apply in the context of the cash 
rent tenant rule.
    Response: It does apply, and we believe that it is clear. We have 
clarified this in our handbooks.
    Comment: If an adult child is trying to start a farm and is renting 
land from their parents, it is unreasonable that the parents cannot 
cosign or guarantee a loan in order for their adult child to obtain the 
operating money? If farmers change an operation's structure FSA is now 
telling them that they are told they will be out of compliance with 
USDA's Risk Management Agency.
    Why is a parent prohibited from co-signing a loan for an adult 
child that is renting land from them?
    Response: The rule does not prevent co-signing a loan; it only 
determines payment eligibility and payment limitations. A person who is 
renting land from someone who also co-signed a loan may not meet the 
requirements for ``actively engaged in farming.'' We did not change the 
rule in response to these comments.
    Comment: Why does FSA care about interest rates and repayment 
schedules? Why are you dictating the terms of financial agreements?
    Response: The 2008 Farm Bill requires us to determine whether 
someone is actively engaged in farming based on their contributions to 
the farming operation and their share of the profits or losses, 
``commensurate with the contributions of the person to the farming 
operation.'' To determine that the contribution of land, capital, or 
equipment is in fact from that person, we need this information. If the 
contribution is funded with a loan, we need this information to ensure 
that there are not improperly favorable ``sweetheart'' funding 
agreements between members of a farming operation set up for the 
purposes of evading payment eligibility provisions. We did not make any 
changes to the rule in response to this comment.

Sec. 1400.203 Joint Operations

    Comments: A more rigorous definition or measurable standard for 
active personal management is needed; too many people per entity are 
qualifying for payment eligibility based on only active personal 
management. However, the comments did not represent a consensus on what 
that standard should be. Use a 1000 hour eligibility (test) for an 
active

[[Page 893]]

contribution of management and labor combined. Require each actively 
engaged partner to work at least 1000 hours in proving labor or 
management, or engage in labor or management for hours equal to at 
least half those required by the share of the operation.
    Define active management to include marketing, securing financing, 
supervising employees, and scheduling field activities.
    Close the potential loopholes and end unlimited payments to the 
nation's largest farms. Require a person to either work half time on a 
farm or provide half the labor or management to qualify as an active 
farmer. The ``actively engaged'' issue is the biggest potential 
loophole of all. Megafarms with investor partners use this potential 
loophole to collect unlimited payments.
    The excess payments gained from the actively engaged potential 
loopholes allow megafarms to outbid smaller farmers and beginning 
farmers for land, leading to the demise of family farming. This 
potential loophole is strangling the economic future of rural 
communities and choking off farm entry for the next generation.
    Require a person to either work half to three quarters of their 
time on the farm, or provide half the labor or all the management on 
the share of the operation to qualify as an active farmer.
    To qualify for eligibility based on active personal management and 
no labor, the rule should require that person to personally provide at 
least 75 percent of the total management required to run the farm or 90 
percent of the total management that would be necessary to conduct a 
farming operation commensurate in size with their requisite share of 
the operation.
    To clarify separate and distinct contributions of active personal 
management, add language in Sec.  1400.203(a)(1) specifying that merely 
participating in meetings and voting is not sufficient. Add similar 
language in Sec.  1400.204(a)(1).
    Response: As indicated previously, the definition of what 
constitutes a significant contribution is provided by regulation, not 
by statute and, therefore, could be changed. We recognize the 
difficulty in determining the significance of a management contribution 
under the current definition and the appeal of a measurable, 
quantifiable standard. However, unlike labor, the significance of a 
management contribution is not appropriately measured by the amount of 
time a person spends doing the claimed contribution. The current 
regulatory definition of a significant contribution of active personal 
management has been in effect for over 20 years; Congress has not 
mandated a more restrictive definition during that time, including in 
the 2008 Farm Bill. However, we are currently exploring whether the 
current definition could be amended in a manner that would be fair, 
equitable, and enhance program integrity. Therefore, no changes were 
made at this time as the result of this comment and other related 
comments.
    Comment: The ``separate and distinct'' requirement is not in the 
2008 Farm Bill. The 2008 Farm Bill requires that the stockholders or 
members collectively make a significant contribution of labor or 
management. The examples in the preamble are unrealistic and reflect a 
division of labor that does not happen in the context of family 
farming. The rule should require that all the members together 
collectively make a contribution.
    Response: As indicated in the comment, the 2008 Farm Bill requires 
that the stockholders or members in a legal entity that is a 
corporation or similar entity collectively make a significant 
contribution of personal labor or active personal management. It does 
not, however, indicate what percentage of stockholders or members in 
the legal entity must collectively make that significant contribution. 
However, if the legal entity is general partnership, joint venture, or 
similar entity, the statute requires that each partner or member must 
make a significant contribution of personal labor or active personal 
management. Therefore, we did not make any changes to the rule in 
response to the comment.
    Comment: The provisions on joint and several liability appear to 
prohibit owner financing and situations where a third party lender 
requires secondary liability or other credit enhancements from 
interested persons where a loan is made to acquire an interest in a 
farming operation. Sound underwriting principles compel Farm Credit 
associations to require the very sort of credit enhancements that this 
rule appears to prohibit. Clarify why CCC is doing this. Why does the 
rule specify the interest rate and repayment schedule for the 
activities it appears to prevent?
    Provisions in Sec. Sec.  1400.203 and 1400.204 appear to say that 
if the capital, land, or equipment of an entity is acquired through a 
loan that is made to, guaranteed by, or co-signed by a person or entity 
that owns the farming entity, then that farming entity is not eligible 
for program payments. The rule does not appear to distinguish between 
loans made between financial entities and the farming entity, and loans 
made between persons or entities that may own the farming entity. Many 
commercial loans to farming entities use these very structures, and 
therefore this could make it difficult for farmers to both obtain 
credit and maintain payment eligibility. Similarly, the provisions 
about ``prevailing interest rates'' are vague. Rewrite this section so 
as not to infringe upon the lending relationships of farm entities and 
their financial institutions.
    Response: This rule does not prohibit any owner financing methods; 
it merely specifies the requirements for payment eligibility. The 
eligibility requirements include a requirement that contributions by a 
person or entity be made by that person or entity, which means that in 
the case of a financed contribution, that the eligible person or entity 
be responsible for the loan. The provisions on interest rates and 
repayment schedules are intended to ensure that there are not 
improperly favorable ``sweetheart'' funding agreements between members 
of a farming operation set up for the purposes of evading payment 
eligibility provisions. We made minor technical corrections to the rule 
to clarify that the requirements for commensurate contributions are 
slightly different from those for significant contributions.
    Comment: FSA told a farmer that he is not eligible because someone 
had cosigned his loan. He owns a lot of equipment and rents his house, 
so he does have risk in the farming operation. How do you expect 
beginning farmers to get started without a little help?
    Response: If the person in question is not actively engaged in 
farming because they have not made the required contributions, then 
they are not eligible for payment. A person who is renting land from 
someone who also co-signed a loan may not meet the requirements for 
``actively engaged in farming.'' We did not make a change to the rule 
in response to this comment.
    Comment: The current language appears to prohibit common joint 
financing arrangements currently in use. To fix that, replace the words 
``interest, and'' in Sec. Sec.  1400.203(b)(1)(iii) and 
1400.204(c)(1)(iii) with ``interest, or.''
    The provisions in Sec.  1400.203(b)(1) and (b)(2) appear to 
contradict each other, as do the provisions of Sec.  1400.204(c)(1) and 
(c)(2), concerning financing arrangements. If the second paragraph is 
in each case intended to be the exception to the first, then the words 
``must not'' should be replaced with ``should not'' and the ``and'' 
connecting the two paragraphs should be replaced with an ``or.''

[[Page 894]]

    Response: We will make a technical correction in the rule to make 
it more clear which requirements apply to commensurate contributions 
and which apply to significant contributions.
    Comment: In Sec.  1400.203(c), add a requirement that no one person 
can provide the active labor, active management, or combination of 
labor and management for multiple farming operations collectively 
receiving more than one maximum payment.
    Response: ``Actively engaged in farming'' determinations are made 
based on contributions to a farming operation. A person or legal entity 
can be legitimately involved in multiple farming operations. We do not 
believe there is authority for the suggested change. Therefore, we did 
not make a change to the rule in response to this comment.

Sec. 1400.204 Limited Partnerships, Limited Liability Partnerships, 
Limited Liability Companies, Corporations, and Other Similar Legal 
Entities

    Comment: The requirement that each member make a contribution of 
labor or management does not make sense in this situation where only 
one payment is being received (for multiple people in the family farm). 
For example, unless an elderly family member is providing active labor 
or management, the family will lose that percentage of program 
payments.
    Response: We agree that does not make sense. The intent of the 
provisions requiring that each member contribute active management or 
labor was to prevent the share of persons who were strictly passive 
investors in a legal entity from being eligible for payments. The 
intent was not to penalize smaller operations that have multiple 
members sharing payments less than or equal to the payment limit for 
one person or legal entity. Therefore, we added an exception if at 
least 50 percent of the stock is held by partners, stockholders, or 
members that are providing active personal labor or active personal 
management and the partners, stockholders, or members providing active 
personal labor or active personal management are collectively receiving 
total payments equal to or less than one limitation.
    Comments: The legal entity should be eligible if some of the 
members work off the farm because they have to; for example, an 
operation that is only a few hundred acres.
    All of the members should be eligible if the legal entity is solely 
owned by relatives, especially if they are siblings.
    The rule should add an exemption for small operations if 51 percent 
of the members are actively engaged.
    Not all the members in the family farm have the time, ambition, or 
skills to participate fully. Passive members of the entity may be doing 
the farm a favor by remaining passive. For farms with family members 
only, the actively engaged requirement should be either management and 
labor or land, capital, and equipment.
    In a family entity where all the members are a family and no-one is 
getting payments through another entity, all family members should be 
considered to be actively engaged.
    This section disincentivizes outside investment and distributing 
shares of a family corporation to family members who are not actively 
engaged in the operation. Many family farms have non-actively-engaged 
family members and outside investors as shareholders so that the 
operation can continue to the next generation. The decision to dilute 
ownership should not be deterred by the government.
    Response: In response to these comments, this rule adds an 
exemption if members who collectively hold at least 50 percent interest 
in the entity make a significant contribution, as described above.
    Comment: Allow the county committee to grant exceptions for family 
farms that are bona fide operations, but where some of the members do 
not provide commensurate contributions due to their age.
    Response: This rule adds an exemption if members who collectively 
hold at least 50 percent interest in the entity make a contribution, as 
described above. There will not be an additional provision for 
exceptions by the FSA county committee.
    Comment: Drop the requirement that each stockholder in a 
corporation be actively engaged in labor or management. Corporations 
can only get one payment; it is partnerships that are the problem.
    Response: The rule does not require that each stockholder be 
actively engaged; it requires that they make a contribution. This rule 
makes a change to require that stockholders who collectively hold at 
least 50 percent interest in the entity, rather than all of the 
stockholders, contribute.
    Comment: Allow members of an entity to make a ``combined'' 
contribution to qualify as actively engaged, and collectively share one 
payment limitation through direct attribution.
    Response: The changes in this rule to Sec. Sec.  1400.203 and 
1400.204 should permit this to occur in most situations.
    Comment: Section 1400.204(c)(1)(ii) has a ``such joint operation'' 
with no antecedent. Should this be ``such legal entity?''
    Response: We corrected that in this rule.
    Comment: The 2008 Farm Bill requires that a person's or entity's 
share of the profits or losses be commensurate to their contribution 
and at risk, but it does not require that the risk of loss be 
commensurate with the claimed share of the operation. That is not 
realistic. There are good business reasons why risk is different, such 
as preferred stock.
    Response: In the case of a legal entity, such as a corporation, the 
risk of loss pertains to the legal entity, not the stockholders of the 
legal entity. Therefore, no changes were made in response to this 
comment.
    Comment: Change the definition of actively engaged to exclude 
corporate partners whose farming is solely to reap government benefits. 
An investor is not a farmer.
    Response: There is no statutory authority to make this specific 
change. However, if a scheme or device has been adopted, the provisions 
in Sec.  1400.5 would apply. Additionally, as indicated in response to 
a related comment, we are exploring whether the current definition of a 
significant contribution of active personal management could be amended 
in a manner that would be fair, equitable, and enhance program 
integrity. Therefore, no changes were made at this time as the result 
of this comment and other related comments.
    Comment: Active managers should be required to live within 20 miles 
of the farm they claim to manage.
    Response: This comment's particular change was not made because it 
is very specific and might not apply to operations in different 
locations. It would not be unusual in a rural area for an active 
manager who works on the farm every day but does not live there to have 
a daily commute of more than 20 miles to the farm. We made no change to 
the rule in response to this comment.
    Comment: To clarify spousal eligibility, add the words ``or their 
spouses'' after the words ``ownership interest'' in Sec.  
1400.204(a)(2).
    Response: We made that change in this rule.

Sec. 1400.207 Landowners

    Comment: No landowner should get a subsidy if the land is rented by 
a real farmer and not owner-operated.

[[Page 895]]

    Absentee landowners should not get payments unless they are 
actively engaged.
    Response: As specified in the 2008 Farm Bill, the regulation allows 
landowners to be eligible for payment only if they have a share in the 
risks and profits of the farming operation. In other words, landowners 
who receive a fixed rental payment regardless of the success of the 
farming operation are not ``producers,'' are not considered to be 
``actively engaged in farming'' and are not eligible for payment. The 
previous rule added more specific language to clarify that absentee 
landowners will not be eligible to receive payment unless they have a 
share in the risks and profits of the farming operation. Therefore, we 
did not change the rule in response to these comments.
    Comment: Are members of a limited liability corporation (LLC) that 
rents land out on a share crop basis determined to be actively engaged 
under the landowner exemption? If so, clarify that in the rule.
    Response: If an LLC rents land, the LLC, rather than the members, 
would or would not be eligible for payment based upon a determination 
of the LLC's eligibility. We did not change the rule in response to 
this comment.
    Comment: Add a paragraph (a)(4) to this section to read ``rents the 
land at a rate that is usual and customary.'' This is needed to avoid 
cut rate leases that are used to evade payment limits.
    Response: This language is not in the 2008 Farm Bill, and we do not 
have the discretionary authority to add such additional requirements. 
Therefore, we did not change the rule in response to this comment.

Sec. 1400.209 Sharecroppers

    Some commenters support all the changes to Sec.  1400.209.
    Comment: The AGI limits will force landlords to change from crop 
share renting to cash basis, which will greatly increase the risk to 
the (crop share) farmer. The shift of farm payment from the landlord, 
who probably pays a 40 percent income tax rate on the benefit, to the 
farmer, who probably pays a 20 percent income tax rate, will reduce 
income tax revenue for the government. Taxpayers will lose.
    The paperwork burden is encouraging landowners to move from share 
rent to cash rent, which increases the risk for (renting) farmers.
    Response: The paperwork burden is necessary to implement payment 
limitation, payment eligibility, and average AGI provisions. The 
average AGI provisions are as specified in the 2008 Farm Bill and we 
must implement them. The argument that the landlord pays a higher tax 
rate than the cash rent farmer on a farm program payment is not a 
sufficient justification to change the rule, since the government would 
spend even less if no payment were made at all due to ineligibility. 
The rule reflects the requirements of the 2008 Farm Bill; therefore, we 
did not make any changes in response to the comment.
    Comment: Some renters have a landlord and also a separate owner or 
``waterlord'' who owns the water rights to the property. Waterlords are 
not allowed the same landlord exemption from actively engaged. They 
should be. If they do not get the exemption, they will shift from share 
rent to cash rent, which again increases the risk to (renter) farmers.
    Response: The 2008 Farm Bill does not mention waterlords; we have 
no authority to set separate eligibility requirements for them or to 
apply landowner provisions if, in fact, they are not the owner of the 
land being farmed. The rule reflects the requirements of the 2008 Farm 
Bill; therefore, we did not make any changes in response to the 
comment.

Sec. 1400.210 Deceased and Incapacitated Persons

    Comment: Explicitly state that if an individual member of a farming 
operation dies, all the surviving members should continue to receive 
timely payments for their share of the operation.
    Response: The regulation does not prevent payments to surviving 
persons if a deceased person was a member of the farming operation. The 
regulation also already specifically allows such payments to the estate 
of a deceased person, provided that a representative of the person's 
estate provides the determining authority the requisite documentation 
that the person was, or intended to be, actively engaged in farming. If 
this comment is about direct and counter-cyclical payment program (DCP) 
enrollments, it is outside the scope of this rule; the DCP regulations 
are in 7 CFR part 1412. If the comment is about payments on behalf of 
the estate of a deceased person, the rule already addresses this 
situation; therefore, no change was made as a result of this comment.

Subpart D--Cash Rent Tenants

    The following discussion addresses the comments received on Subpart 
D by section.

Sec. 1400.301 Eligibility

    Comment: It is unreasonable to require the tenant to exercise 
complete control over the leased equipment for an entire crop year, 
when that equipment is leased from a landlord or from the same source 
as the hired labor. It is wasteful to leave equipment idle when it 
could otherwise be put to efficient use.
    Response: The section on cash rent tenants did not change 
significantly with the previous rule, so the requirement of a 
contribution of equipment and the complete control requirement are not 
new. The change made in the previous rule was to specify that 
``complete control'' means ``exclusive access and use by the tenant.''
    To clarify further, the current regulations do not require that a 
tenant lease equipment for an entire crop year; the regulation only 
states that if a tenant is eligible for payment based on a contribution 
of equipment that such equipment be leased for the entire crop year. A 
cash rent tenant can be eligible for payment by contributing either 
labor or management and equipment. In other words, no contribution of 
equipment is required for a cash rent tenant to be eligible for payment 
if they make a significant contribution of labor to the farming 
operation instead. We did not change the rule based on this comment.
    Comment: The provisions about leased equipment are not feasible for 
custom farm work. For example, if a farmer hires someone to combine 
corn for a flat rate, it is impossible to separate into equipment lease 
and labor for the purposes of the regulation or the 902 forms. With a 
custom flat rate, there is no risk to the farmer, like there would be 
if the farmer leases the equipment and breaks a belt, so it is in no 
way the same thing as a lease or separable into a lease and labor. 
Clarify in the rule, so it is applied consistently and correctly.
    Response: To be ``actively engaged'' as a cash rent tenant based on 
a contribution of equipment, the equipment must be leased and other 
requirements must be met. A custom farming contract is not a lease. The 
rule is consistent in the sense that it makes no mention of custom 
farming as qualifying a cash rent tenant as actively engaged. This is 
consistent with the 2008 Farm Bill, which allows a recipient of custom 
farming services to be eligible if the person or legal entity is a 
landowner, adult family member of a family farming operation, 
sharecropper, or grower of hybrid seed. The 2008 Farm Bill explicitly 
prohibits us from making any other rules with

[[Page 896]]

respect to custom farming in terms of being ``actively engaged.'' 
Therefore, we did not make any changes in response to the comment.
    Comment: To clarify spousal eligibility, add the words ``or their 
spouses'' after the words ``each member'' in Sec.  1400.301(d).
    Response: We made that change in this rule.

Subpart E--Foreign Persons

    The following discussion addresses the comment received on Subpart 
E by section.

Sec. 1400.402 Notification

    Comment: Section 1400.402, which sets forth notification 
requirements for both foreign and domestic legal entities, should be 
combined with section Sec.  1400.107, ``Notification of Interests.''
    Response: Section 1400.402 is currently located in the subpart on 
Foreign Persons, because it specifically requires foreign and domestic 
legal entities to notify the county committee of foreign interests in 
that entity. We did not change the rule in response to this comment.

Subpart F--Average Adjusted Gross Income Limitation

    The following discussion addresses the comments received on Subpart 
F by section.

Sec. 1400.500 Applicability

    Comment: We support payment limits that deny payments to anyone 
whose average nonfarm AGI exceeds $500,000, and denying direct payments 
to anyone whose average farm AGI exceeds $750,000.
    Response: These requirements, as specified in the 2008 Farm Bill, 
were implemented in the previous rule and require no additional 
changes.
    Comment: We support the $1 million AGI cap for conservation program 
benefits, providing that the 75 percent farm income exemption remains 
intact.
    Response: The $1 million AGI cap for conservation program benefits, 
as specified in the 2008 Farm Bill, was implemented in the previous 
rule. There is an exception if not less than 66.66 percent of that 
income is farm income. That 66.66 percent threshold was specified in 
the 2008 Farm Bill; there is no authority to change the threshold to 75 
percent, as suggested. Therefore, we did not make any changes in 
response to the comment.
    Comment: Consider alternatives to the AGI limits and provisions set 
in the 2008 Farm Bill. Corporations making more than $250,000 in profit 
or where the shareholders are not at least 50 percent immediate family 
members should be excluded.
    Reducing the AGI limit to $250,000 might slow down the trend 
towards bigger and bigger farms driving the small ones out of business.
    The subsidy cap should be gross sales over $1 million.
    Farm income should exceed all other forms of income to be eligible 
for any payment.
    Farm income should be at least 25 percent of total income to be 
eligible for any payment.
    The current AGI limits in the 2008 Farm Bill would be devastating 
to America's farmers, and any further reduction could lead us to rely 
on imported food as we do with oil today. Can you change the limits?
    Payment limits should be done by number of acres rather than 
income, because the big operators will always find a way to get around 
the AGI limits with shadow partners or big machinery purposes. The 
coverage should be for a certain number of acres, not a certain AGI.
    Use net income instead of gross, so that we can also collect social 
security.
    If there is going to be a gross income limit, it should be at least 
a million and probably two million, but there does need to be an upper 
income. Gross income is harder to manipulate than net, so it should 
probably be gross.
    Response: The 2008 Farm Bill was specific on the AGI provisions. 
The $500,000 limit on nonfarm AGI and the $750,000 limit on farm income 
were specified in the 2008 Farm Bill, as well as the general categories 
of what will be considered farm income. Therefore, we did not make any 
changes in response to the comments.
    Comment: Remove or delay implementation of the AGI limits. With no 
time to plan for these changes we will be forced to lay off farm hands, 
grow fewer crops and livestock, and increase food prices.
    Response: We must implement the requirements of the 2008 Farm Bill; 
therefore, we did not make any changes in response to the comments.
    Comment: Waive the AGI limit for conservation programs for cost-
share forestry activities in priority areas identified by States per 
section 8002 of the 2008 Farm Bill.
    Response: The Secretary has the authority, as specified in the 2008 
Farm Bill and in Sec.  1400.500, to waive the AGI limit on a case-by-
case basis for the protection of environmentally sensitive land of 
special significance. Forest stewardship activities in priority areas 
could meet that criteria, but such activities will be reviewed on a 
case-by-case basis. That is already specified in the rule, so we did 
not make any changes to the rule in response to this comment.
    Comment: Are the ``previous 3 tax years'' based on the crop year or 
the time of signup? For example, if one person signs up for 2011 DCP in 
October 2010, do they have the same 3 years for AGI calculation as 
someone who signs up for 2011 DCP in January 2011?
    Response: For the purposes of determining the 3 applicable tax 
years, it does not matter when during a crop, fiscal, or program year a 
person signs up for the program. In this example, the 3 applicable tax 
years would be 2007 through 2009. We did not make any changes to the 
rule in response to this comment.

Sec. 1400.501 Determination of Adjusted Gross Income

    Comments: Make it clear that wages from a farming operation or 
other entity is considered farm income for AGI purposes.
    Specifically reference IRS Schedule T for forest activities.
    Take into account that the IRS limits losses that can be claimed if 
a producer receives benefits, which could understate a producer's 
losses while exaggerating AGI, unfairly resulting in program 
ineligibility.
    Are dividends from the activities listed here considered farm 
income?
    Include farm income, wages, and dividends as farm income for the 
purpose of the AGI rule.
    Are profits and losses from LLCs involved in the activities listed 
here considered farm income?
    If entities are involved in the list in Sec.  1400.501 and other 
activities, how are the dividends or profits allocated between farm and 
non-farm income?
    What about income derived or received from interests held in 
ethanol plants and processing facilities?
    Response: The provisions in the previous rule relating the 
determination of average adjusted gross farm income are based on the 
provisions in the 2008 Farm Bill. The rule also indicated that the 
determination of average adjusted gross farm income would include any 
other activity related to farming, ranching, or forestry, as determined 
by the Deputy Administrator. Accordingly, the issue on wages and 
related issues in these comments will be addressed in handbook 
procedure.
    Comment: If a farmer sold some land, there could be a very large 
income in that year. Use at least a 5 year average AGI instead of a 3 
year average AGI to

[[Page 897]]

avoid penalizing people in that example.
    Response: The 3 year average AGI provision was specified in the 
2008 Farm Bill, as were the general categories of what will be 
considered farm income. Therefore, we did not make any changes to the 
rule in response to the comments.

Sec. 1400.502 Compliance and Enforcement

    Comment: A farmer should not have to certify my AGI every year, nor 
should the FSA office be reviewing tax returns. Farmers generally do 
not employ certified tax accountants for preparation of tax returns and 
that AGI certification would create undue hardship; third party 
verifiers (CPAs & lawyers) may be reluctant to assume liability for 
providing certifications.
    Response: The requirement to certify average AGI as required by CCC 
is not new and does not represent an unreasonable requirement. CCC 
believes that such certification is necessary to ensure that payments 
are made to persons and legal entities that qualify under the AGI 
limits set by Congress, and that payments are not made based on 
fraudulent AGI statements. We did not make any changes to the rule in 
response to the comment.
    Comments: Handle AGI verification in house, by sharing data with 
IRS. County offices should not be storing AGI records locally for 
everyone; have county offices verify only those records that do not 
pass the first screen against IRS data.
    Do not let the USDA have access to our IRS files. That is a clear 
violation of privacy, and the information will somehow, inevitably end 
up publicly available. Personal IRS data should not end up on an 
interest group Web site.
    Information obtained by USDA from the IRS should not be subject to 
FOIA.
    Investigation of IRS ``red flagged'' files should be done at a 
central FSA office, not at the county level, for reasons of expertise 
and confidentiality.
    Response: We are currently working with the Treasury Department to 
improve our methods for AGI verification while maintaining full privacy 
and confidentiality of this sensitive information. As in the previous 
rule, any information gathered for average AGI verification and 
compliance purposes is not subject to disclosure under FOIA.
    Comments: Let farmers use IRS enrolled agents to certify.
    Let farmers use tax preparers who are not IRS enrolled agents, 
attorneys, or CPAs to certify.
    Response: For average AGI certification purposes, both the 2002 and 
2008 Farm Bill allow a statement from a certified public accountant or 
from a third party acceptable to the Secretary. The decision was made 
that only an attorney is an acceptable third party qualified to provide 
such a statement.

General Comments Received

    Some comments received on the previous rule provided general 
comments not related to any specific subpart or section of the interim 
rule.
     Some of the general comments supported or opposed 
alternative proposals to the 2008 Farm Bill. In response, CCC is 
implementing the 2008 Farm Bill and will implement any amendments if 
and when those amendments become law.
     Some comments expressed general disapproval with the 
entire farm program, or with certain aspects of the program. In 
response, CCC does not have the authority to end the direct payments 
program, or any other program authorized by Congress.
     Some comments expressed general views, rather than making 
specific suggestions for changes to this rule. In response, CCC 
welcomes the input but cannot make specific changes to the rule based 
on general views.
     Some comments suggested changes to USDA programs outside 
the scope of CCC programs. In response, CCC does not have authority to 
make changes to rules for non-CCC programs. Also, we cannot change the 
DCP program or forms for DCP enrollment with this rule, because that is 
outside the scope of 7 CFR part 1400.
     Some comments and questions were about the forms used to 
apply for payments or verify income. While the forms were re-numbered 
in 2008 and have a different appearance than previously, the questions 
and information requested are essentially the same as for the past 
twenty years. We will address some of these comments by clarifying and 
updating our handbooks.
    The following comments, which generally fit into the categories 
just discussed, are outside the scope of this rule:
     Bring back the CRC Plus program.
     Strongly opposed to the current administration's proposal 
to cap payments based on $500,000 gross farm revenue.
     Strongly support the current administration's proposal to 
cap payments based on $500,000 gross farm revenue.
     Strongly oppose the proposal to phase out DCP and change 
the crop insurance program.
     ACRE should be a one year commitment, and not require that 
the landlord agree.
     New farm land should be eligible for DCP.
     Farmers' health insurance is increasing 40-50 percent this 
year.
     Write gardening into the school curriculum.
     A guaranteed farmer bailout every year is no less wrong 
than two or three bailouts for banks. Allowance to fail is part of 
capitalism.
     Government should not be a reason that children are fat 
and unhealthy.
     Do something about abuse of downer cows at 
slaughterhouses.
     Do all you can to help factory farm animals.
     Extend subsidies to farmers who grow vegetables, 
particularly those grown sustainably. Favor farms that sell locally and 
sustainably grown vegetables over farmers who sell too much grain that 
ends up in the international marketplace, devastating farmers in 
developing nations.
     Create a simple system for vendors at farmers' markets to 
accept the supplemental nutrition assistance program.
     Help real farmers, not megafarms with investors.
     Support local organic farmers.
     Support community supported agriculture.
     Farmers who are entities should not be banned from 
receiving USDA low interest loans.
     CCC-509 does not work for Native Americans.
     A guaranteed payment regardless of crop price or profit is 
not a safety net. With crop insurance, disaster assistance, and price 
support now in place, direct payments should be phased out.
     Oppose direct payments because they distort the playing 
field in favor of large corporate farms. Eliminate all direct payments 
to farmers, and keep in place the price support programs.
     Consider ways that the farm payments program can promote 
an increase in the acreage of deep-rooted grassland plant cover, 
preferably native grassland species.
     The government should not be helping any farmer, large or 
small. Let the free market take place. This would allow small family 
farms to have a fighting chance against corporate farms.
     Offer tax breaks or subsidies for organic farming or 
moving away from non-edible corn and into growing fruits and 
vegetables.
     Re-direct subsidies to support insect, wildlife, and human 
communities.

[[Page 898]]

Summary of Changes to the Rule

    As discussed above, in response to the comments, we made changes to 
the rule. Also, we made a number of additional technical corrections 
and minor clarifications. The changes are summarized below.
    We added an exception for smaller operations to the requirement 
that every interest holder in a legal entity must provide active 
personal labor or active personal management. We clarified provisions 
concerning CRP and other conservation programs, so that the rule is 
consistent with current practice.
    We made the date for minor child determination consistent with the 
date for payment attribution.
    We corrected and clarified cross-references between this part and 
other parts in this chapter, and corrected and clarified cross-
references between sections in this part. We also fixed inconsistent 
terminology. We removed Sec.  1400.7, ``Commensurate Contributions and 
Risk,'' from subpart A because all of the provisions are duplicated in 
subpart C and to clarify that the provisions apply only to programs to 
which subpart C applies. We clarified the provisions for trusts and 
estates to make them consistent with other sections in this part 
regarding contributions.
    On other topics on which we received comments, we did not change 
the rule, but we provided additional clarification in the preamble and 
plan to add additional detail to our handbooks. These topics include:
     Spousal eligibility for different types of joint 
operations,
     Substantive change rules,
     Financing of capital, land, and equipment contributions,
     Withdrawal and resubmission of farm operating plans, and
     The tax status of entities and income that is not relevant 
for the purposes of this part.

Executive Order 12866

    The Office of Management and Budget (OMB) designated this final 
rule as significant and it was reviewed by the Office of Management and 
Budget (OMB) under Executive Order 12866. A Cost Benefit Analysis is 
summarized below and is available from the contact information listed 
above.

Summary of Economic Impacts

    The 2008 Farm Bill requires major revisions of payment eligibility 
and payment limit regulations, which were implemented with the interim 
rule.
    The exception made by this rule to the requirement that all 
stockholders, partners, or members in an entity have to contribute 
personal labor or active personal management is expected to impact 
fewer than a thousand entities. The monetary impact is not substantial. 
Although those entities were impacted by the requirement imposed by the 
interim rule, they were still eligible for reduced payments based on 
the percentage of stockholders, partners, or members in the entity 
making the required contributions. The change made by this rule will 
allow full payment.
    This rule also implements minor technical corrections, such as 
correcting internal paragraph references, which are expected to have no 
substantive cost or benefit.
    There is estimated to be minimal cost to the government in 
implementing this regulation because the forms and procedures for 
determining payment eligibility are not changing.

Regulatory Flexibility Act

    This rule is not subject to the Regulatory Flexibility Act since 
CCC is not required to publish a notice of proposed rulemaking for this 
rule. CCC is authorized by section 1601 of the 2008 Farm Bill to issue 
an interim rule effective on publication with an opportunity for 
comment, which was done.

Environmental Review

    CCC received one comment on the previous rule stating an EIS is 
needed to comply with NEPA.
    The environmental impacts of this final rule have been considered 
in a manner consistent with the provisions of the National 
Environmental Policy Act (NEPA), 42 U.S.C. 4321-4347, the regulations 
of the Council on Environmental Quality (40 CFR Parts 1500-1508), and 
FSA's regulations for compliance with NEPA (7 CFR part 799). The 
changes to Payment Limitation and Payment Eligibility required by the 
2008 Farm Bill that are identified in this rule are non-discretionary. 
Therefore, FSA has determined that NEPA does not apply to this rule and 
no environmental assessment or environmental impact statement will be 
prepared.

Executive Order 12372

    This program is not subject to Executive Order 12372, which 
requires consultation with State and local officials. See the notice 
related to 7 CFR part 3015, subpart V, published in the Federal 
Register on June 24, 1983 (48 FR 29115).

Executive Order 12988

    The final rule has been reviewed in accordance with Executive Order 
12988. This rule is not retroactive and does not preempt State or local 
laws, regulations, or policies unless they present an irreconcilable 
conflict with this rule. Before any judicial action may be brought 
concerning the provisions of this rule, the administrative appeal 
provisions of 7 CFR parts 11 and 780 must be exhausted.

Executive Order 13132

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

Executive Order 13175

    The policies contained in this rule do not impose substantial 
unreimbursed direct compliance costs on Indian Tribal governments or 
have Tribal implications that preempt Tribal law.

Unfunded Mandates

    This rule contains no Federal mandates under the regulatory 
provisions of Title II of the Unfunded Mandates Reform Act of 1995 
(UMRA) for State, local or Tribal governments, or the private sector. 
In addition, CCC is not required to publish a notice of proposed 
rulemaking for this rule. Therefore, this rule is not subject to the 
requirements of sections 202 and 205 of UMRA.

Federal Assistance Programs

    The title and number of the Federal assistance programs in the 
Catalog of Federal Domestic Assistance to which this final rule applies 
are:

10.055--Direct and Counter-Cyclical Payments Program.
10.069--Conservation Reserve Program.
10.072--Wetlands Reserve Program.
10.082--Tree Assistance Program.
10.912--Environmental Quality Incentives Program.
10.914--Wildlife Habitat Incentive Program.
10.917--Agricultural Management Assistance.
10.918--Ground and Surface Water Conservation--Environmental Quality.
Incentives Program
10.920--Grassland Reserve Program.

[[Page 899]]

    This final rule also applies to the following Federal assistance 
programs that are not in the Catalog of Federal Domestic Assistance:
     ACRE,
     Emergency Assistance Program for Livestock, Honey Bees, 
and Farm-raised Fish (ELAP),
     Livestock Forage Disaster Program (LFP),
     Livestock Indemnity Program (LIP),
     Supplemental Revenue Assistance Program (SURE),
     Agricultural Water Enhancement Program (AWEP),
     Chesapeake Bay Watershed Program (CBWP),
     Conservation Stewardship Program (CSTP),
     Cooperative Conservation Partnership Initiative (CCPI), 
and
     Farm and Ranchland Protection Program (FRPP).

Paperwork Reduction Act

    The regulations in this rule are exempt from the requirements of 
the Paperwork Reduction Act (44 U.S.C. Chapter 35), as specified in 
Section 1601(c)(2) of the 2008 Farm Bill, which provides that these 
regulations be promulgated and the programs administered without regard 
to the Paperwork Reduction Act.
    We received comments on the previous rule that the forms require 
disclosure of information that should not be required and the burden 
for AGI compliance is excessive. The requirement to certify average AGI 
as required by CCC is not new and does not represent an inappropriate 
requirement. While the forms were re-numbered in 2008 and have a 
different appearance than previously, the questions and information 
requested is essentially the same as for the last 20 years. Therefore, 
the AGI certification is necessary to ensure that payments are made to 
persons and legal entities that qualify under the AGI limits set by 
Congress, and that payments are not made based on fraudulent AGI 
statements.

E-Government Act Compliance

    CCC is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.

List of Subjects in 7 CFR Part 1400

    Agriculture, Loan programs--agriculture, Conservation, Price 
support programs, Reporting and recordkeeping requirements.

0
For the reasons discussed above, this rule amends 7 CFR part 1400 as 
follows:

PART 1400--PAYMENT LIMITATION AND PAYMENT ELIGIBILITY FOR 2009 AND 
SUBSEQUENT CROP, PROGRAM, OR FISCAL YEARS

0
1. The authority citation continues to read as follows:

    Authority: 7 U.S.C. 1308, 1308-1, 1308-2, 1308-3, 1308-3a, 1308-
4, and 1308-5.

0
2. Amend Sec.  1400.1 as follows:
0
a. In paragraph (a), introductory text, remove the words ``parts 1421 
and'', and add, in their place, the words ``parts 1421, 1430, and'',
0
b. In paragraph (a)(2), add the words ``with respect to contracts 
approved on or after October 1, 2008 '' at the end, before the 
semicolon,
0
c. Add paragraph (a)(8) to read as set forth below, and
0
d. Revise paragraph (f) to read as set forth below.

Sec.  1400.1  Applicability.

    (a) * * *
    (8) Subparts C and D of this part do not apply to the programs 
listed in paragraphs (a)(2) through (a)(7) of this section.
* * * * *
    (f) The following amounts are the limitations on payments per 
person or legal entity for the applicable period for each payment or 
benefit.

------------------------------------------------------------------------
                                                              Limitation
                                                              per person
                                                               or legal
                     Payment or benefit                      entity, per
                                                                crop,
                                                             program, or
                                                             fiscal year
------------------------------------------------------------------------
(1) Direct Payments for covered commodities \1\............      $40,000
(2) Direct Payments for peanuts \1\........................       40,000
(3) CRP annual rental payments \2\.........................       50,000
(4) GRP....................................................       50,000
(5) WHIP...................................................       50,000
(6) WRP \3\................................................       50,000
(7) Counter-Cyclical Payments for covered commodities \3\..       65,000
(8) Counter-Cyclical Payments for peanuts \3\..............       65,000
(9) NAP payments...........................................      100,000
(10) Supplemental Agricultural Disaster Assistance \4\.....      100,000
(11) TAP...................................................      100,000
(12) CSTP \5\..............................................      200,000
(13) EQIP..................................................      300,000
------------------------------------------------------------------------
\1\ If the person or legal entity has a direct or indirect interest in
  payments earned on a farm that is in ACRE, this limitation will
  reflect a 20 percent reduction in direct payments on each farm that is
  participating in ACRE.
\2\ Limitation is applicable to annual rental payments received directly
  and indirectly from all CRP contracts regardless of contract approval
  date, except payments received directly and indirectly under CRP
  contracts approved prior to October 1, 2008, may exceed the
  limitation, subject to payment limitation rules in effect on the date
  of contract approval.
\3\ The payment limit does not apply to payments for perpetual or 30
  year easements or under 30 year contracts.
\4\ Under ACRE, this amount will be a combined limitation for counter-
  cyclical and ACRE payments. If a person or legal entity has a direct
  or indirect interest in payments earned on a farm that is
  participating in ACRE, this limitation will reflect an increase for
  the amount that the direct payments were reduced.
\5\ Total payments received under Supplemental Agricultural Disaster
  Assistance through SURE, LIP, LFP, and ELAP may not exceed $100,000.
\6\ The $200,000 limit is the total limit for 2009 through 2012.
Note: AMA, AWEP, CBWP, CCPI, and FRPP are all limited by available
  funding rather then an amount by participant.

Sec.  1400.2  [Amended]

0
3. Amend Sec.  1400.2 in paragraph (g) by removing the words ``will not 
be made by a county FSA office'' and adding, in their place, the words 
``will be made by the FSA State office''.

Sec.  1400.6  [Amended]

0
4. Amend Sec.  1400.6 in paragraph (a) by removing the words ``joint 
ventures and general partnerships'' and adding, in their place, the 
words ``joint operations''.

Sec.  1400.7  [Removed and Reserved]

0
5. Remove and reserve Sec.  1400.7.

Sec.  1400.101  [Amended]

0
6. Amend Sec.  1400.101, paragraph (a), by removing the date ``April 
1'' and replacing it with the date ``June 1''.

0
7. Amend Sec.  1400.102 as follows:
0
a. In paragraph (a), remove the reference to ``Sec.  1400.1'' and add, 
in its place, a reference to ``Sec.  1400.1(a)(1)'' and
0
b. Revise paragraph (c) to read as set forth below.

Sec.  1400.102  States, political subdivisions, and agencies thereof.

* * * * *
    (c) The total payments described in paragraph (b) of this section 
cannot exceed $500,000 annually except for States with a population 
less than 1,500,000, as established by the most recent U.S. Census 
Bureau annual estimate of such State's resident population.

Sec.  1400.104  [Amended]

0
8. Amend Sec.  1400.104 as follows:
0
a. In paragraphs (a)(1) and (a)(2) add the word ``or'' at the end of 
the paragraph.

[[Page 900]]

0
b. In paragraphs (a)(3)(ii) and (a)(4)(v), remove the period at the end 
of the paragraph, and add a semicolon and the word ``; or'' in its 
place.
0
c. In paragraphs (a)(4)(iii) and (a)(5)(iii), add the words ``direct or 
indirect'' before the word ``control''.

0
9. Amend Sec.  1400.105 by adding paragraphs (d)(1) and (d)(2) to read 
as follows:

Sec.  1400.105  Attribution of payments.

* * * * *
    (d) * * *
    (1) If the change in ownership interest is due to the death of an 
interest holder in the legal entity or the legal entity did not exist 
on June 1 of the applicable year, the Deputy Administrator may 
determine that a change after June 1 is considered relevant or 
effective for the current year.
    (2) Changes that occur after June 1 cannot be used to increase the 
amount of program payments a legal entity, or its members, is eligible 
to receive directly or indirectly for the applicable year.
* * * * *

Sec.  1400.106  [Amended]

0
10. Amend Sec.  1400.106, paragraph (b), by removing the words ``joint 
venture or general partnership'' both times they appear and adding, in 
their place, the words ``joint operation'' and by removing the words 
``joint ventures or general partnerships'' and adding, in their place, 
the words ``joint operations''.

Sec.  1400.202  [Amended]

0
11. Amend Sec.  1400.202 as follows:
0
a. In paragraph (c)(1) introductory text, remove the word ``Must'', and 
add, in its place, the words ``To meet the requirements of paragraph 
(a)(1)(i) of this section, must'' at the beginning of the paragraph, 
and
0
b. In paragraph (c)(2) introductory text, remove the word ``If'', and 
add, in its place, the words ``To meet the requirements of paragraphs 
(a)(2) and (a)(3) of this section, and if'' at the beginning of the 
paragraph.

Sec.  1400.203  [Amended]

0
12. Amend Sec.  1400.203 as follows:
0
a. In paragraph (b)(1) introductory text, remove the words ``Must be'', 
and add, in its place, the words ``To meet the requirements of 
paragraph (a)(1)(i) of this section, and if'' at the beginning of the 
paragraph, and
0
b. In paragraph (b)(2) introductory text, remove the word ``If'', and 
add, in its place, the words ``To meet the requirements of paragraphs 
(a)(2) and (a)(3) of this section, and if'' at the beginning of the 
paragraph.

0
13. Amend Sec.  1400.204 as follows:
0
a. In paragraph (a)(2) introductory text, add the words ``or their 
spouse with an ownership interest'' after the words ``ownership 
interest'',
0
b. In paragraph (a)(3), add the word ``collective'' before the word 
``contribution'',
0
c. Redesignate paragraph (c) as paragraph (d),
0
d. Add new paragraph (c) to read as set forth below,
0
e. In newly redesignated paragraph (d)(1) introductory text, remove the 
word ``Must'', and add, in its place, the words ``To meet the 
requirements of paragraph (a)(1) of this section, must'' at the 
beginning of the paragraph,
0
f. In newly redesignated paragraph (d)(1)(ii), remove the words ``Such 
joint operation'' and add, in their place, the words ``Such legal 
entity'', and
0
g. In newly designated paragraph (d)(2) introductory text, remove the 
word ``If'', and add, in its place, the words ``To meet the 
requirements of paragraphs (a)(4) and (a)(5) of this section, and if'' 
at the beginning of the paragraph.

Sec.  1400.204  Limited partnerships, limited liability partnerships, 
limited liability companies, corporations, and other similar legal 
entities.

* * * * *
    (c) An exception to paragraph (b) of this section will apply if:
    (1) At least 50 percent of the stock is held by partners, 
stockholders, or members that are actively providing labor or 
management and
    (2) The partners, stockholders, or members are collectively 
receiving, directly or indirectly, total payments equal to or less than 
one payment limitation.
* * * * *

0
14. Amend Sec.  1400.205 as follows:
0
a. Redesignate paragraphs (e) and (f) as (f) and (g) and
0
b. Add new paragraph (e) to read as set forth below:

Sec.  1400.205  Trusts.

* * * * *
    (e) For a farming operation conducted by a trust in which the 
capital, land, or equipment is contributed by the trust, such capital, 
land, or equipment:
    (1) To meet the requirements of paragraph (a) of this section, must 
be contributed directly by the trust and must not be acquired as a loan 
made to, guaranteed, co-signed, or secured by:
    (i) Any person, legal entity, or joint operation that has an 
interest in such farming operation, including the trust's income 
beneficiaries;
    (ii) Such joint operation by any person, legal entity, or other 
joint operation that has an interest in such farming operation; or
    (iii) Any person, legal entity, or joint operation in whose farming 
operation such trust has an interest, and
    (2) To meet the requirements of paragraphs (c) and (d) of this 
section and if land, capital or equipment is acquired as a result of a 
loan made to, guaranteed, co-signed, or secured by the persons, legal 
entities, or joint operations as defined, the loan must:
    (i) Bear the prevailing interest rate; and
    (ii) Have a repayment schedule considered reasonable and customary 
for the area.
* * * * *

0
15. Amend Sec.  1400.206 as follows:
0
a. Redesignate paragraph (b) as (c) and
0
b. Add paragraph (b) to read as set forth below:

Sec.  1400.206  Estates.

* * * * *
    (b) For a farming operation conducted by an estate in which the 
capital, land, or equipment is contributed by the estate, such capital, 
land, or equipment:
    (1) To meet the requirements of paragraph (a) of this section, must 
be contributed directly by the estate and must not be acquired as a 
loan made to, guaranteed, co-signed, or secured by:
    (i) Any person, legal entity, or joint operation that has an 
interest in such farming operation, including the estate's heirs;
    (ii) Such joint operation by any person, legal entity, or other 
joint operation that has an interest in such farming operation; or
    (iii) Any person, legal entity, or joint operation in whose farming 
operation such an estate has an interest; and
    (2) To meet the requirements of paragraphs (c)(3)and (a)(4) of this 
section, and if land, capital or equipment is acquired as a result of a 
loan made to, guaranteed, co-signed, or secured by the persons, legal 
entities, or joint operations as defined, the loan must:
    (i) Bear the prevailing interest rate; and
    (ii) Have a repayment schedule considered reasonable and customary 
for the area.
* * * * *

Sec.  1400.301  [Amended]

0
16. Amend Sec.  1400.301, in paragraph (d), by adding the words ``or 
their spouse'' after the word ``member''.

[[Page 901]]

    Signed in Washington, DC, on December 30, 2009.
Chris P. Beyerhelm,
Acting Executive Vice President, Commodity Credit Corporation.
*COM057*[FR Doc. 2010-7 Filed 1-6-10; 8:45 am]
BILLING CODE 3410-05-P
```