II 111th CONGRESS 2d Session S. 3701 IN THE SENATE OF THE UNITED STATES August 4, 2010 Mr. Grassley (for himself and Mr. Feingold) introduced the following bill; which was read twice and referred to the Committee on Agriculture, Nutrition, and Forestry A BILL To amend the Food Security Act of 1985 to restore integrity to and strengthen payment limitation rules for commodity payments and benefits.

1.

Short title

This Act may be cited as the Rural America Preservation Act of 2010.

2.

Payment limitations

(a)

In general

Section 1001 of the Food Security of 1985 (7 U.S.C. 1308) is amended— (1)in subsection (a)— (A)in paragraph (2), by striking a person and inserting an individual; and (B)by striking paragraphs (3) and (4) and inserting the following: (3)

Individual

The term individual means— (A)a natural person, and any minor child of the natural person (as determined by the Secretary), who, subject to the requirements of this section and section 1001A, is eligible to receive a payment under a provision of law referred to in subsection (b), (c), or (d); and (B)a natural person participating in a farming operation as a partner in a general partnership, a participant in a joint venture, a grantor of a revocable trust, or a participant in a similar entity (as determined by the Secretary). (4)

Legal entity

(A)

In general

The term legal entity means— (i)an organization that (subject to the requirements of this section and section 1001A) is eligible to receive a payment under a provision of law referred to in subsection (b) or (c); (ii)a corporation, joint stock company, association, limited partnership, limited liability company, limited liability partnership, charitable organization, estate, irrevocable trust, grantor of a revocable trust, or other similar entity (as determined by the Secretary); and (iii)an organization that is participating in a farming operation as a partner in a general partnership or as a participant in a joint venture. (B)

Exclusion

The term legal entity does not include a general partnership or joint venture. (C)

Estates

In promulgating regulations to define the term legal entity as the term applies to estates, the Secretary shall ensure that fair and equitable treatment is given to estates and the beneficiaries of estates. (D)

Irrevocable trusts

In promulgating regulations to define the term legal entity as the term applies to irrevocable trusts, the Secretary shall ensure that irrevocable trusts are legitimate entities that have not been created for the purpose of avoiding a payment limitation. ; (2)in subsection (b)— (A)by striking a person each place it appears and inserting an individual; (B)in paragraph (1)(A), by striking $40,000 and inserting $20,000; (C)in paragraphs (2) and (3), by striking the person each place it appears and inserting the individual; and (D)in paragraphs (2) and (3)(A), by striking $65,000 each place it appears and inserting $30,000; (3)in subsection (c)— (A)by striking a person each place it appears and inserting an individual; (B)in paragraph (1)(A), by striking $40,000 and inserting $20,000; (C)in paragraphs (2) and (3), by striking the person each place it appears and inserting the individual; and (D)in paragraphs (2) and (3)(A), by striking $65,000 each place it appears and inserting $30,000; (4)by striking subsection (d) and inserting the following: (d)

Limitations on marketing loan gains, loan deficiency payments, and commodity certificate transactions

The total amount of the following gains and payments that an individual or legal entity may receive during any crop year may not exceed $75,000: (1)(A)Any gain realized by a producer from repaying a marketing assistance loan for 1 or more loan commodities and peanuts under subtitle B or C of title I of the Food, Conservation, and Energy Act of 2008 (7 U.S.C. 8731 et seq.) at a lower level than the original loan rate established for the loan commodity under those subtitles. (B)In the case of settlement of a marketing assistance loan for 1 or more loan commodities and peanuts under those subtitles by forfeiture, the amount by which the loan amount exceeds the repayment amount for the loan if the loan had been settled by repayment instead of forfeiture. (2)Any loan deficiency payments received for 1 or more loan commodities and peanuts under those subtitles. (3)Any gain realized from the use of a commodity certificate issued by the Commodity Credit Corporation for 1 or more loan commodities and peanuts, as determined by the Secretary, including the use of a certificate for the settlement of a marketing assistance loan made under those subtitles or section 1307 of that Act (7 U.S.C. 7957). ; (5)by striking subsection (e); (6)by redesignating subsections (f), (g), and (h) as subsections (i), (j), and (k), respectively; (7)by inserting after subsection (d) the following: (e)

Payments to individuals and legal entities

Notwithstanding subsections (b) through (d), an individual or legal entity may receive, directly or indirectly, through all ownership interests of the individual or legal entity, from all sources, payments or gains (as applicable) for a crop year that shall not exceed an amount equal to twice the applicable dollar amounts specified in subsections (b), (c), and (d). (f)

Spousal equity

(1)

In general

Notwithstanding subsections (b) through (e), except as provided in paragraph (2), if an individual and the spouse of the individual are covered by paragraph (2) and receive, directly or indirectly, any payment or gain covered by this section, the total amount of payments or gains (as applicable) covered by this section that the individual and spouse may jointly receive during any crop year may not exceed an amount equal to twice the applicable dollar amounts specified in subsections (b), (c), and (d). (2)

Exceptions

(A)

Separate farming operations

In the case of a married couple in which each spouse, before the marriage, was separately engaged in an unrelated farming operation, each spouse shall be treated as a separate individual with respect to a farming operation brought into the marriage by a spouse, subject to the condition that the farming operation shall remain a separate farming operation, as determined by the Secretary. (B)

Election to receive separate payments

A married couple may elect to receive payments separately in the name of each spouse if the total amount of payments and benefits described in subsections (b), (c), and (d) that the married couple receives, directly or indirectly, does not exceed an amount equal to twice the applicable dollar amounts specified in those subsections. (g)

Attribution of payments

(1)

In general

The Secretary shall issue such regulations as are necessary to ensure that all payments or gains (as applicable) are attributed to an individual by taking into account the direct and indirect ownership interests of the individual in a legal entity that is eligible to receive such payments or gains (as applicable). (2)

Payments to an individual

Every payment made directly to an individual shall be combined with the individual’s pro rata interest in payments received by a legal entity or entities in which the individual has a direct or indirect ownership interest. (3)

Payments to a legal entity

(A)

In general

Every payment or gain (as applicable) made to a legal entity shall be attributed to those individuals who have a direct or indirect ownership in the legal entity. (B)

Attribution of payments

(i)

Payment limits

Except as provided by clause (ii), payments or gains (as applicable) made to a legal entity shall not exceed twice the amounts specified in subsections (b) through (d). (ii)

Exception

Payments or gains (as applicable) made to a joint venture or a general partnership shall not exceed, for each payment or gain (as applicable) specified in subsections (b) through (d), the amount determined by multiplying twice the maximum payment amount specified in subsections (b), (c), and (d) by the number of individuals and legal entities (other than joint ventures and general partnerships) that comprise the ownership of the joint venture or general partnership. (4)

4 levels of attribution for embedded legal entities

(A)

In general

Attribution of payments or gains (as applicable) made to legal entities shall be traced through 4 levels of ownership in legal entities. (B)

First level

Any payments or gains (as applicable) made to a legal entity (a first-tier legal entity) that is owned in whole or in part by an individual shall be attributed to the individual in an amount that represents the direct ownership in the first-tier legal entity by the individual. (C)

Second level

(i)

In general

Any payments or gains (as applicable) made to a first-tier legal entity that is owned in whole or in part by another legal entity (a second-tier legal entity) shall be attributed to the second-tier legal entity in proportion to the ownership interest of the second-tier legal entity in the first-tier legal entity. (ii)

Ownership by individual

If the second-tier legal entity is owned in whole or in part by an individual, the amount of the payment made to the first-tier legal entity shall be attributed to the individual in the amount the Secretary determines to represent the indirect ownership in the first-tier legal entity by the individual. (D)

Third and fourth levels

(i)

In general

Except as provided in clause (ii), the Secretary shall attribute payments or gains (as applicable) at the third and fourth tiers of ownership in the same manner as specified in subparagraph (C). (ii)

Fourth-tier ownership by legal entity

If the fourth-tier of ownership is that of a fourth-tier legal entity, the Secretary shall reduce the amount of the payment to be made to the first-tier legal entity in the amount that the Secretary determines to represent the indirect ownership in the first-tier legal entity by the fourth-tier legal entity. ; (8)in subsection (i) (as redesignated by paragraph (6))— (A)in paragraphs (2) and (7)(A), by striking persons each place it appears and inserting individuals; and (B)in paragraphs (4)(A) and (8)(A), by striking person each place it appears and inserting individual; and (9)in subsection (k) (as redesignated by paragraph (6)), in the second sentence, by striking or other entity and inserting or legal entity. (b)

Conforming amendments

(1)Section 531 of the Federal Crop Insurance Act (7 U.S.C. 1531) is amended— (A)in subsection (f)(4)— (i)in subparagraph (A)— (I)in the heading, by striking person and inserting individual; and (II)by striking person and inserting individual; and (ii)in subparagraphs (B) and (C), by striking a person each place it appears and inserting an individual; and (B)in subsection (h)— (i)in paragraph (1), in the heading, by striking person and inserting individual; and (ii)in paragraph (2), by striking a person and inserting an individual. (2)Section 196(i) of the Federal Agriculture Improvement and Reform Act of 1996 (7 U.S.C. 7333(i)) is amended— (A)in paragraph (1), by striking person and inserting individual; (B)in paragraphs (2) and (5)(B), by striking a person each place it appears and inserting an individual; and (C)in paragraph (4), by striking A person and inserting An individual. (3)Section 1001D of the Food Security Act of 1985 (7 U.S.C. 1308–3a) is amended— (A)by striking a person each place it appears and inserting an individual; (B)by striking the person each place it appears and inserting the individual; (C)in subsection (a)(3)— (i)in the matter preceding subparagraph (A), by striking any person and inserting any individual; and (ii)by striking the persons each place it appears and inserting the individuals; (D)in subsection (d)(3), by striking persons and inserting individuals; and (E)in subsection (e), by striking each person and inserting each individual. (4)Section 1201(a)(19) of the Food Security Act of 1985 (16 U.S.C. 3801(a)(19)) is amended— (A)in the heading, by striking Person and inserting Individual; and (B)by striking person and inserting individual. (5)Section 1234(f) of the Food Security Act of 1985 (16 U.S.C. 3834(f)) is amended— (A)in paragraph (1), by striking a person and inserting an individual; (B)in paragraph (4), by striking any person and inserting any individual; and (C)by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively. (6)Section 1237A(f)(4) of the Food Security Act of 1985 (16 U.S.C. 3837a(f)(4)) is amended by striking a person and inserting an individual. (7)Section 1237D(c)(1) of the Food Security Act of 1985 (16 U.S.C. 3837d(c)(1)) is amended by striking a person and inserting an individual. (8)Section 1238G(g) of the Food Security Act of 1985 (16 U.S.C. 3838g(g)) is amended by striking A person and inserting An individual. (9)Section 1238P(b) of the Food Security Act of 1985 (16 U.S.C. 3838p(b)) is amended— (A)in paragraph (2)(B), by striking a person and inserting an individual; and (B)in paragraph (4)(B), by striking a person and inserting an individual. (10)Section 1240B(i)(3) of the Food Security Act of 1985 (16 U.S.C. 3839aa–2(i)(3)) is amended in the first sentence by striking a person and inserting an individual. (11)Section 1240G(a) of the Food Security Act of 1985 (16 U.S.C. 3839aa–7) is amended— (A)by striking a person and inserting an individual; and (B)by striking the person and inserting the individual. (12)Section 1240N(e) of the Food Security Act of 1985 (16 U.S.C. 3839bb–1(e)) is amended by striking a person and inserting an individual. (13)Section 901 of the Trade Act of 1974 (19 U.S.C. 2497) is amended— (A)in subsection (f)(4)— (i)in subparagraph (A)— (I)in the paragraph heading, by striking person and inserting individual; and (II)by striking person and inserting individual; and (ii)in subparagraphs (B) and (C), by striking a person each place it appears and inserting an individual; and (B)in subsection (h)— (i)in paragraph (1), in the heading, by striking person and inserting individual; and (ii)in paragraph (2), by striking a person and inserting an individual.

3.

Substantive change; payments limited to active farmers

The Food Security Act of 1985 is amended by striking section 1001A (7 U.S.C. 1308–1) and inserting the following:

1001A.

Substantive change; payments limited to active farmers

(a)

Substantive change

(1)

In general

For purposes of the application of limitations under this section, the Secretary shall not approve any change in a farming operation that otherwise would increase the number of individuals or legal entities to which the limitations under this section apply, unless the Secretary determines that the change is bona fide and substantive. (2)

Family members

For the purpose of paragraph (1), the addition of a family member (as defined in subsection (b)(2)(A)) to a farming operation under the criteria established under subsection (b)(3)(B) shall be considered to be a bona fide and substantive change in the farming operation. (3)

Primary control

To prevent a farm from reorganizing in a manner that is inconsistent with the purposes of this Act, the Secretary shall promulgate such regulations as the Secretary determines to be necessary to simultaneously attribute payments for a farming operation to more than 1 individual or legal entity, including the individual or legal entity that exercises primary control over the farming operation, including to respond to— (A)(i)any instance in which ownership of a farming operation is transferred to an individual or legal entity under an arrangement that provides for the sale or exchange of any asset or ownership interest in 1 or more legal entities at less than fair market value; and (ii)the transferor is provided preferential rights to repurchase the asset or interest at less than fair market value; or (B)a sale or exchange of any asset or ownership interest in 1 or more legal entities under an arrangement under which rights to exercise control over the asset or interest are retained, directly or indirectly, by the transferor. (b)

Payments limited to active farmers

(1)

In general

To be eligible to receive, directly or indirectly, payments or benefits described as being subject to limitation in subsection (b) through (d) of section 1001 with respect to a particular farming operation, an individual or legal entity (as defined in section 1001(a)) shall be actively engaged in farming with respect to the farming operation, in accordance with paragraphs (2), (3), and (4). (2)

General classes actively engaged in farming

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

Definitions

In this paragraph: (i)

Active personal management

The term active personal management means, with respect to an individual, administrative duties carried out by the individual for a farming operation— (I)that are personally provided by the individual on a regular, substantial, and continuing basis; and (II)relating to the supervision and direction of— (aa)activities and labor involved in the farming operation; and (bb)onsite services directly related and necessary to the farming operation. (ii)

Family member

The term family member, with respect to an individual participating in a farming operation, means an individual who is related to the individual as a lineal ancestor, a lineal descendant, or a sibling (including a spouse of such an individual). (B)

Active engagement

Except as provided in paragraph (3), for purposes of paragraph (1), the following shall apply: (i)An individual shall be considered to be actively engaged in farming with respect to a farming operation if— (I)the individual makes a significant contribution, as determined under subparagraph (E) (based on the total value of the farming operation), to the farming operation of— (aa)capital, equipment, or land; and (bb)personal labor and active personal management; (II)the share of the individual of the profits or losses from the farming operation is commensurate with the contributions of the individual to the operation; and (III)a contribution of the individual is at risk. (ii)A legal entity shall be considered to be actively engaged in farming with respect to a farming operation if— (I)the legal entity makes a significant contribution, as determined under subparagraph (E) (based on the total value of the farming operation), to the farming operation of capital, equipment, or land; (II)(aa)the stockholders or members that collectively own at least 51 percent of the combined beneficial interest in the legal entity each make a significant contribution of personal labor and active personal management to the operation; or (bb)in the case of a legal entity in which all of the beneficial interests are held by family members, any stockholder or member (or household comprised of a stockholder or member and the spouse of the stockholder or member) who owns at least 10 percent of the beneficial interest in the legal entity makes a significant contribution of personal labor or active personal management; and (III)the legal entity meets the requirements of subclauses (II) and (III) of clause (i). (C)

Legal entities making significant contributions

If a general partnership, joint venture, or similar entity (as determined by the Secretary) separately makes a significant contribution (based on the total value of the farming operation involved) of capital, equipment, or land, the partners or members making a significant contribution of personal labor or active personal management and meeting the standards provided in subclauses (II) and (III) of subparagraph (B)(i) shall be considered to be actively engaged in farming with respect to the farming operation involved. (D)

Equipment and personal labor

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

Significant contribution of personal labor or active personal management

(i)

In general

Subject to clause (ii), for purposes of subparagraph (B), an individual shall be considered to be providing, on behalf of the individual or a legal entity, a significant contribution of personal labor and active personal management, if the total contribution of personal labor and active personal management is at least equal to the lesser of— (I)1,000 hours; and (II)a period of time equal to— (aa)50 percent of the commensurate share of the total number of hours of personal labor and active personal management required to conduct the farming operation; or (bb)in the case of a stockholder or member (or household comprised of a stockholder or member and the spouse of the stockholder or member) that owns at least 10 percent of the beneficial interest in a legal entity in which all of the beneficial interests are held by family members who do not collectively receive payments directly or indirectly, including payments received by spouses, of more than twice the applicable limit, 50 percent of the commensurate share of hours of the personal labor and active personal management of all family members required to conduct the farming operation. (ii)

Minimum labor hours

For the purpose of clause (i), the minimum number of labor hours required to produce a commodity shall be equal to the number of hours that would be necessary to conduct a farming operation for the production of each commodity that is comparable in size to the commensurate share of an individual or legal entity in the farming operation for the production of the commodity, based on the minimum number of hours per acre required to produce the commodity in the State in which the farming operation is located, as determined by the Secretary. (3)

Special classes actively engaged in farming

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

Landowners

An individual or legal entity that is a landowner contributing owned land, and that meets the requirements of subclauses (II) and (III) of paragraph (2)(B)(i), if, as determined by the Secretary— (i)the landowner share-rents the land at a rate that is usual and customary; and (ii)the share received by the landowner is commensurate with the share of the crop or income received as rent. (B)

Family members

With respect to a farming operation conducted by individuals who are family members, or a legal entity the majority of the stockholders or members of which are family members, an adult family member who makes a significant contribution (based on the total value of the farming operation) of active personal management or personal labor and, with respect to such contribution, who meets the requirements of subclauses (II) and (III) of paragraph (2)(B)(i). (C)

Sharecroppers

A sharecropper who makes a significant contribution of personal labor to the farming operation and, with respect to such contribution, who meets the requirements of subclauses (II) and (III) of paragraph (2)(B)(i), and who was receiving payments from the landowner as a sharecropper prior to the effective date of the Food, Conservation, and Energy Act of 2008 (Public Law 110–246; 122 Stat. 1651). (4)

Individuals and legal entities not actively engaged in farming

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

Landlords

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

Other individuals and legal entities

Any other individual or legal entity, or class of individuals or legal entities, that fails to meet the requirements of paragraphs (2) and (3), as determined by the Secretary. (5)

Personal labor and active personal management

No stockholder or member may provide personal labor or active personal management to meet the requirements of this subsection for individuals or legal entities that collectively receive, directly or indirectly, an amount equal to more than twice the applicable limits under subsections (b), (c), and (d) of section 1001. (6)

Custom farming services

An individual or legal entity receiving custom farming services will be considered separately eligible for payment limitation purposes if the individual or legal entity is actively engaged in farming based on paragraphs (1) through (3). (7)

Growers of hybrid seed

To determine whether an individual or legal entity growing hybrid seed under contract shall be considered to be actively engaged in farming, the Secretary shall not take into consideration the existence of a hybrid seed contract. (c)

Notification by legal entities

To facilitate the administration of this section, each legal entity that receives payments or benefits described as being subject to limitation in subsection (b), (c), or (d) of section 1001 with respect to a particular farming operation shall— (1)notify each individual or other legal entity that acquires or holds a beneficial interest in the farming operation of the requirements and limitations under this section; and (2)provide to the Secretary, at such times and in such manner as the Secretary may require, the name and social security number of each individual, or the name and taxpayer identification number of each legal entity, that holds or acquires such a beneficial interest.

.

4.

Schemes or devices

The Food Security Act of 1985 is amended by striking section 1001B (7 U.S.C. 1308–2) and inserting the following:

1001B.

Schemes or devices

(a)

In general

If the Secretary determines that any individual or legal entity has adopted a scheme or device to evade, or that has the purpose of evading, section 1001, 1001A, or 1001C, such individual or legal entity shall be ineligible to receive farm program payments (as described in subsections (b), (c), and (d) of section 1001 as being subject to limitation) applicable to the crop year for which the scheme or device was adopted and the succeeding crop year. (b)

Extended ineligibility

If the Secretary determines that an individual or legal entity, for the benefit of the individual or legal entity or of any other individual or legal entity, has knowingly engaged in, or aided in the creation of fraudulent documents, failed to disclose material information relevant to the administration of this subtitle requested by the Secretary, or committed other equally serious actions as identified in regulations issued by the Secretary, the Secretary may for a period not to exceed 5 crop years deny the issuance of payments to the individual or legal entity. (c)

Fraud

If fraud is committed by an individual or legal entity in connection with a scheme or device to evade, or that has the purpose of evading, section 1001, 1001A, or 1001C, the individual or legal entity shall be ineligible to receive farm program payments described as being subject to limitation in subsection (b), (c), or (d) of section 1001 for— (1)the crop year for which the scheme or device is adopted; and (2)the succeeding 5 crop years. (d)

Joint and several liability

Any individual or legal entity that participates in a scheme or device described in subsection (a) or (b) shall be jointly and severally liable for any and all overpayments resulting from the scheme or device, and subject to program ineligibility resulting from the scheme or device, regardless of whether a particular individual or legal entity was a payment recipient. (e)

Waiver authority

(1)

In general

The Secretary may fully or partially release an individual or legal entity from liability for repayment of program proceeds under subsection (d) if the individual or legal entity cooperates with the Department of Agriculture by disclosing a scheme or device to evade section 1001, 1001A, or 1001C or any other provision of law administered by the Secretary that imposes a payment limitation. (2)

Discretion

The decision of the Secretary under this subsection is vested in the sole discretion of the Secretary.

.

5.

Foreign individuals and legal entities made ineligible for program benefits

Section 1001C of the Food Security Act of 1985 (7 U.S.C. 1308–3) is amended— (1)in the section heading, by striking persons and inserting individuals and legal entities; (2)in subsection (a), by striking person each place it appears and inserting individual; (3)in subsection (b)— (A)in the subsection heading, by striking Corporation or other and inserting Legal; (B)in the first sentence— (i)by striking a corporation or other entity shall be considered a person that and inserting a legal entity; and (ii)by striking persons both places it appears and inserting individuals; and (C)in the second sentence, by striking an entity and inserting a legal entity; and (4)in subsection (c), by striking person and inserting legal entity or individual.

6.

Regulations

(a)

In general

The Secretary of Agriculture may promulgate such regulations as are necessary to implement this Act and the amendments made by this Act. (b)

Procedure

The promulgation of the regulations and administration of this Act and the amendments made by this Act shall be made without regard to— (1)the notice and comment provisions of section 553 of title 5, United States Code; (2)the Statement of Policy of the Secretary of Agriculture effective July 24, 1971 (36 Fed. Reg. 13804), relating to notices of proposed rulemaking and public participation in rulemaking; and (3)chapter 35 of title 44, United States Code (commonly known as the Paperwork Reduction Act). (c)

Congressional review of agency rulemaking

In carrying out this section, the Secretary shall use the authority provided under section 808 of title 5, United States Code.