How Should Crop Insurance Deferral Be Reported for ERP and PARP?
FSA released a FAQ on crop insurance and livestock deferral proceeds. The FAQ needs to be updated since it does not provide enough clarity. We review the issue.
FSA issued new FAQs on January 23, 2022 regarding the Emergency Relief Program Phase 2 and many of the FAQs answers some of our questions, there is one dealing with crop insurance deferral that actually creates more questions than it answers.
Farmers who receive crop insurance for yield losses have an option to elect to report that income in the next year. Many farmers take advantage of this, and it appears that FSA tried to address how to report this revenue for ERP Phase 2 and PARP as follows:
Q. How will deferred revenue and crop insurance proceeds be addressed?Â
A. Revenue is based on tax year and is specific to each applicant. The revenue would go with the applicable tax year the applicant would have reported for tax purposes. ERP Phase 2 is a producer certification-based program, specific questions on revenue reporting should be addressed with the producer’s individual tax preparer. FSA cannot provide casual advice for how income could or should have been reported. The FSA-521 table contains what is considered allowable gross revenue.
I have bolded the section that needs to be clarified. Crop insurance proceeds received in any applicable tax year is then reported on line 6a of Schedule F. However, actual taxable crop insurance proceeds for the year are reported on line 6b and then any deferred from the previous year are reported on line 6c.
It appears that the FAQ indicates you report crop insurance proceeds based on line 6b plus 6c, however, it is our opinion line 6a is likely the correct amount of crop insurance proceeds to be reported. When determining adjusted gross income (AGI) for the $900,000 annual AGI limit, we use line 6b plus 6c. Is FSA suggesting we use the same or use line 6a. We need better clarity on this before calculating allowable gross revenue (AGR). Here is an example:
Sue has benchmark revenue of $2 million for 2018 and 2019. In 2020, she has crop revenue of $1 million and received $700,000 of crop insurance proceeds which she elected to defer to 2021. 70% of $2 million is $1.4 million and if Sue does not include the $700,000 of crop insurance proceeds in 2020 as part of AGR, she will qualify for up to $400,000 of ERP Phase 2 (before any payment limits). However, if AGR is based on crop insurance proceeds received during 2020 reported on line 6a, she would qualify for no ERP Phase 2 payments.
As you can see, the reporting of these proceeds can be material to the calculations. The same issue applies to PARP. We will keep you posted.
Has this been clarified?
I heard a webcast on Farmers.gov that seemed like he said to use the taxable amount.