[Federal Register Volume 79, Number 195 (Wednesday, October 8, 2014)]
[Rules and Regulations]
[Pages 60739-60745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24046]



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  Federal Register / Vol. 79, No. 195 / Wednesday, October 8, 2014 / 
Rules and Regulations  

[[Page 60739]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Parts 761, 762, 763, 764, and 765

RIN 0560-AI25


Farm Loan Programs; Entity Eligibility

AGENCY: Farm Service Agency, USDA.

ACTION: Interim final rule.

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

SUMMARY: The Farm Service Agency (FSA) is amending the Farm Loan 
Programs (FLP) regulations for loan making and servicing on eligibility 
conditions for certain legal entities, allowing additional flexibility 
for loan applicants to meet the required farming experience, and 
increasing the maximum total indebtedness on Microloans (ML) to 
$50,000. The changes implement provisions of the Agricultural Act of 
2014 (2014 Farm Bill). The changes will help increase the number of 
entities eligible to participate in certain FLP loans and adjust to 
better reflect the changes in the way farms are owned and operated by 
legal entities. The changes will allow FSA to extend credit and 
servicing to family farm operations that may have been ineligible under 
existing regulations.

DATES: Effective date: November 7, 2014.
    Comment date: We will consider comments that we receive by: 
December 8, 2014.

ADDRESSES: We invite you to submit comments on this rule. In your 
comment, please specify RIN 0560-AI25 and include the volume, date, and 
page number of this issue of the Federal Register. You may submit 
comments by either of the following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the instructions for submitting comments.
     Mail: Director, Loan Making Division, the Farm Loan 
Program (FLP), FSA, U.S. Department of Agriculture, 1400 Independence 
Avenue SW., Stop 0522, Washington, DC 20250-0522.
    Comments will be available for viewing online at http://www.regulations.gov. In addition, comments will be available for public 
inspection at the above address during business hours from 8 a.m. to 5 
p.m., Monday through Friday, except holidays.

FOR FURTHER INFORMATION CONTACT: Steven K. Ford; telephone: (202) 304-
7932. Persons with disabilities or who require alternative means for 
communications (Braille, large print, audiotape, etc.) should contact 
the USDA Target Center at (202) 720-2600 (voice).

SUPPLEMENTARY INFORMATION:

Background

    FSA makes and services a variety of direct and guaranteed loans to 
farmers who are temporarily unable to obtain private commercial credit. 
FSA also provides direct loan customers with credit counseling and 
supervision to enhance their opportunity for success. FSA loan 
applicants are often beginning farmers and socially disadvantaged 
farmers who do not qualify for conventional loans because of 
insufficient net worth or established farmers who have suffered 
financial setbacks due to natural disasters or economic downturns. FSA 
loans are tailored to a customer's needs and may be used to buy 
farmland and to finance agricultural production.
    As discussed below, this rule amends the FLP regulations for loan 
making and servicing on eligibility conditions for certain legal 
entities, allowing additional flexibility for loan applicants to meet 
the required farming experience, and increasing the maximum total 
indebtedness on ML to $50,000.
    FSA is implementing the amendments included in this rule in keeping 
with the related provisions in the 2014 Farm Bill (Pub. L. 113-79).

Eligible Entities

    Sections 5001, 5002, 5101, and 5201 of the 2014 Farm Bill amend 
eligibility criteria in the Consolidated Farm and Rural Development Act 
(CONACT, 7 U.S.C. 1981-2008r) for various FSA loans allowing FSA to 
include other legal entities the Secretary considers appropriate. (See 
CONACT sections 302(a) (7 U.S.C. 1922(a)), 304(c) (7 U.S.C. 1924(c)), 
311(a) (7 U.S.C. 1941(a), and 321(a) (7 U.S.C. 1961(a).) Prior to the 
2014 Farm Bill, FSA could only lend to those legal entity types 
specifically mentioned in the CONACT. In many situations, FSA had to 
require a family farm to modify its operating structure in order to 
qualify for an FLP loan. Otherwise, FSA determined that the loan 
applicant was ineligible for the FLP loans.
    FSA supports farmers structuring their operations to take advantage 
of financial planning techniques that entity arrangements have to 
offer. Therefore, to implement the 2014 Farm Bill amendments to the 
CONACT mentioned above, FSA is amending the definition of an entity in 
7 CFR 761.2 to include a type of organization, as determined by the 
Secretary, authorized to conduct business in the state in which it 
operates. There are two types of organizations that continue to be 
ineligible--estates and nonprofit organizations.
    FSA will not include estates as an eligible entity since they are 
designed to be temporary in nature, and not an ongoing business entity. 
Nonprofit organizations also will not be considered an eligible entity 
since they are inconsistent with FSA's mission to establish and improve 
family farm operations and assist them in becoming profitable and self-
sufficient so they may qualify for commercial credit.
    All other existing rules regarding operating a family farm, 
availability of other credit, and individual liability for debt will 
continue to apply.

Definition of ``Farm'' and ``Family Farm''

    For clarity, FSA is amending the definition of ``family farm'' in 7 
CFR 761.2 to specify that ``family farm'' refers to the farm business 
operation, not real estate. This clarification reflects FSA's long-
standing interpretation and application of the term ``family farm'' as 
the business operation and ``farm'' as the farm real estate. Minor 
amendments are included in Sec. Sec.  762.120, 763.5, and 764.152 to 
clarify that the term ``family farm'' refers to the business operation 
and the word ``farm'' refers to real estate.

Eligibility of Certain Operating-Only Entities

    Section 5001(a) of the 2014 Farm Bill amends section 302(a)(2) of 
the

[[Page 60740]]

CONACT (7 U.S.C. 1922(a)(2)) to allow an operating entity to meet the 
owner-operator requirements and thereby qualify for a direct or 
guaranteed Farm Ownership (FO) loan, provided the individuals that are 
the owners of the farm (real estate) own at least 50 percent of the 
family farm (operating entity). The 2014 Farm Bill specifies ``more 
than 50 percent'' and also permits the Secretary to determine another 
appropriate percentage of ownership. Frequently, two-person entities 
are established using equal (50/50) ownership shares. Therefore, FSA 
determined that the appropriate percentage of ownership is ``at least 
50 percent.''
    To qualify for an FO loan, a loan applicant must be or become an 
owner and operator of a family farm. Prior to this rule, borrowers were 
required to own the farm real estate in the same legal manner as they 
operated the farm. This practice has become less common. Many family 
farm operations may own the farm real estate under a separate legal 
entity, which facilitates estate planning and the transfer of farm 
assets between generations. In many situations, the individuals that 
own the farm real estate and those operating the family farm business 
are identical even though multiple entities are involved. FSA is 
amending 7 CFR 762.120 and 764.152 to allow an applicant that is an 
entity and that does not own a farm (real estate) to qualify for an FO 
loan if the individuals who own the farm own at least 50 percent of the 
family farm (operating entity).
    Similarly, 7 CFR 763.5 is being amended for the Land Contract 
Guarantee Program to reflect the eligibility of certain operating-only 
entities meeting the at least 50 percent ownership requirement.
    These changes allow existing operations to maintain their operating 
structure, and allow new FLP borrowers to structure their operations in 
a manner that works best for them. These amendments will allow FSA to 
extend credit to family farm operations that may have been ineligible 
under existing regulations.
    This rule also includes minor amendments to existing language in 7 
CFR 762.120 and 7 CFR 762.152 addressing the treatment of entity 
applicants who are related or not related by blood or marriage. The 
authority for this change is in section 302(a)(1) of the CONACT (7 
U.S.C. 1922). This change was needed to make the Direct Loan and 
Guaranteed Loan program regulations consistent.
    In 7 CFR 761.2, FSA is clarifying the definition of ``operator'' to 
specify that operating-only entities may be considered owner-operators 
when the individuals that own the farm real estate own at least 50 
percent of the family farm (operating entity).

Eligibility of Certain Embedded Entities

    Sections 5001, 5101, and 5201 of the 2014 Farm Bill amend FLP 
eligibility criteria to allow an applicant that is owned by another 
entity or entities (``embedded entities''), to qualify for direct or 
guaranteed FO, direct or guaranteed Operating Loans (OL), or Emergency 
Loans (EM) provided that the individuals that own the family farm own 
at least 75 percent of each embedded entity.
    Previously, FSA required all entity applicants to be owned by 
individuals and not other entities. This requirement was established to 
help direct FLP loan funds to family farms as intended and avoid 
larger, more complex operations. However, over time this rule has 
become a barrier for many family farm operations. It has become an 
increasingly common business practice to separate certain segments of 
family farm operations for liability and financial planning reasons. 
Many operations are structured this way to facilitate the entry and 
exit of family members as operations grow and age.
    Therefore, this rule adds a definition of ``embedded entity'' and 
``entity member'' to 7 CFR 761.2, which will apply to all FLP loans. 
These changes will allow entity applicants to be eligible even if 
members of the entity applicant are entities themselves. ``Entity 
member'' will mean all individuals and all embedded entities, as well 
the individual members of the embedded entities, having an ownership 
interest in the assets of the entity.
    In addition, FSA is modifying 7 CFR 762.120, 763.5, and 764.101 to 
allow multiple levels of entity ownership, provided at least 75 percent 
of each embedded entity is owned by individuals actively managing or 
operating the family farm. Adding the limitation that the individuals 
making up the at least 75 percent ownership must be actively managing 
or operating the family farm is an essential requirement, and is 
consistent with FSA's mission to assist family farm operations. The 
requirement for at least 75 percent of the owners to be active 
operators or managers separates out those who are simply investors when 
applying the 75 percent test.
    Furthermore, existing rules governing the family farm and test for 
credit will remain in place to further ensure FLP funds are targeted to 
family farms otherwise unable to obtain credit. This approach meets 
FSA's mission to provide credit to family farm operators rather than 
larger farming operations with many investors.
    FSA is modifying 7 CFR 762.130 and 764.402 to require debt 
instruments for Direct and Guaranteed loans be executed to show 
evidence for liability of any embedded entity, as well as the applicant 
and all individuals in all entities. The change is needed to protect 
the government's interest and ensure collectability of the debt.
    FSA is modifying 7 CFR 763.7 and 764.51 to change the requirements 
from requiring ``current personal financial statements from each member 
of the entity'' to remove the word ``personal'' and to require 
``current financial statements from each member of the entity.'' These 
changes are being made as a conforming change resulting from the 
allowance of embedded entities.
    Finally, FSA is making conforming changes in 7 CFR part 765 to 
address the transfer or assumption to other entities. In Sec.  765.401, 
the requirement to assume personal liability for the loan was required 
for the entity and each member--it is being changed to the entity and 
each entity member. In Sec.  765.402, several conforming changes are 
being made to reflect entity members instead of just members (which 
previously was assumed to be individual members), and to expand the 
types of entities to include other legal business organizations as 
determined by the Secretary.

Direct Farm Ownership Experience Requirement

    Section 5001(b) of the 2014 Farm Bill amends provisions for direct 
FO loans, allowing the Secretary additional flexibility to establish 
requirements for a loan applicant to meet the test that they have 
participated in the operation of a farm for at least 3 years.
    Previously, an applicant for a direct FO had to have participated 
in the operations of a farm for at least 3 years. The rule was 
established to encourage a responsible path toward starting and growing 
a farming operation. However, this 3-year requirement has proven to be 
overly restrictive and incompatible with the current mode of entry for 
many beginning farmers. Section 5001(b) of the 2014 Farm Bill allows 
applicants to demonstrate previous experience by having participated in 
the business operations of a farm or ranch for not less than 3 years or 
having other acceptable experience for a period of time as determined 
by the Secretary.
    Many of today's beginning farmers do not have farm backgrounds, but 
come to the industry through a variety of

[[Page 60741]]

avenues such as post-secondary education, farm apprenticeship, veteran 
training, and extension programs. The 3-year requirement provides a 
reasonable foundation for successful farm ownership, but ignores 
certain training and experiences that can be just as valuable, and in 
some cases more valuable than limited farm business operations 
experiences. A formal farming apprenticeship, operation or management 
of a non-farm business, leadership or management experience while 
serving in any branch of the military, advanced education in an 
agricultural field, and significant experience in a farm-related 
agricultural career are examples of experiences that can provide some 
of the knowledge, skills, and abilities essential for successful farm 
ownership. FSA concluded that while some actual farm operational 
experience remains essential, it is reasonable to consider other work, 
business, or education as contributing toward a portion of the 3 year 
requirement. Therefore, FSA is modifying both the definition of 
``participated in the business operations of a farm'' in 7 CFR 761.2 
and the requirement in 7 CFR 764.152 to acknowledge the value of these 
other experiences.

ML Changes

    FSA revised the direct OL regulations to implement the ML Program 
to better serve the unique operating needs of small family farm 
operations through a rule published in the Federal Register on January 
17, 2013 (78 FR 3828-3836). The purpose of the ML Program is to make 
the OL program more widely available and useful to small operators 
through reduced application requirements, faster application 
processing, and added flexibility in meeting the managerial ability 
eligibility requirement. The ML Program was implemented with the 
requirement that both the loan amount and the applicant's total FSA OL 
indebtedness, at the time of loan closing, would not exceed $35,000. 
Section 5106 of the 2014 Farm Bill allows the Secretary to set the 
maximum for the total principal indebtedness outstanding at any one 
time for ML made to any one borrower at $50,000. The regular OL 
application process will be used for OL requests and applicant 
indebtedness that exceed the maximum amount.
    During the rulemaking process that implemented the ML Program, 
there were suggestions to set the ML maximum at a higher level or lower 
level than the proposed $35,000. FSA agreed to review the success of 
the ML Program and reevaluate the loan amounts periodically. The 
average ML obligated during the first year of implementation is 
$19,800. ML made at the $35,000 maximum amount account for nearly 25 
percent of all direct OLs currently made since the ML Program began. 
Therefore, this rule is amending the maximum amount for MLs to $50,000.

Notice and Comment

    In general, the Administrative Procedure Act (APA, 5 U.S.C. 553) 
requires that a notice of proposed rulemaking be published in the 
Federal Register and interested persons be given an opportunity to 
participate in the rulemaking through submission of written data, 
views, or arguments with or without opportunity for oral presentation, 
except when the rule involves a matter relating to public property, 
loans, grants, benefits, or contracts (5 U.S.C. 553(a)(2)). Although 
FSA could use the APA exemption and publish this rule as a final rule 
without the opportunity for public comment, FSA is implementing the 
regulatory changes through an interim rule to provide an opportunity 
for public comment while also implementing the rule without unnecessary 
delay to benefit FSA customers with the additional flexibility provided 
by the changes.

Executive Order 12866 and 13563

    Executive Order 12866, ``Regulatory Planning and Review,'' and 
Executive Order 13563, ``Improving Regulation and Regulatory Review,'' 
direct agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts, and equity). Executive Order 13563 emphasizes the importance 
of quantifying both costs and benefits, of reducing costs, of 
harmonizing rules, and of promoting flexibility.
    The Office of Management and Budget (OMB) designated this rule as 
significant under Executive Order 12866, ``Regulatory Planning and 
Review,'' and, therefore, OMB has reviewed this rule. The estimated 
costs and benefits of this rule are summarized below. The full cost 
benefit analysis is available on regulations.gov.

Clarity of the Regulation

    Executive Order 12866, as supplemented by Executive Order 13563, 
requires each agency to write all rules in plain language. In addition 
to your substantive comments on this rule, we invite your comments on 
how to make the rule easier to understand. For example:
     Are the requirements in the rule clearly stated? Are the 
scope and intent of the rule clear?
     Does the rule contain technical language or jargon that is 
not clear?
     Is the material logically organized?
     Would changing the grouping or order of sections or adding 
headings make the rule easier to understand?
     Could we improve clarity by adding tables, lists, or 
diagrams?
     Would more, but shorter, sections be better? Are there 
specific sections that are too long or confusing?
     What else could we do to make the rule easier to 
understand?

Cost Benefit Analysis Summary

    Legal entities (partnerships, LLCs, etc.) comprised 13.3 percent of 
all farms (2012 Census of Agriculture). While the number of entities 
has remained relatively stable over the past 20 years, the complexity 
of their business structures has increased. One example is farm land 
ownership. Given high land prices and huge capital requirements, many 
farm operations lack the financial resources to purchase full ownership 
of farmland tracts that they operate and consequently, some have turned 
to alternative business structures where farmland is owned by an 
entity. Prior to the implementation of this rule, family farms using 
such strategies to acquire farmland may have found themselves 
ineligible for FSA credit programs. This is because the regulations 
prior to this rule change required the farm real estate to be owned by 
the same legal structure as the farm operation. This rule change will 
permit a family farm entity to receive an FO loan as long as the family 
farm entity resulting after the loan is closed is at least 50-percent 
owned by the owners of the farm real estate, provided all other loan 
eligibility requirements are satisfied.
    Embedded entities--where the members of an entity are entities 
themselves--provide another example of increasingly complex business 
structures. Though not widespread, a noteworthy number of family farm 
operations organized as legal entities are owned partly or wholly by 
one or more embedded entities. The FSA Direct Attribution Reporting 
data base indicates that, in 2013, about 11 percent of all entities 
receiving payments had an embedded entity. Such entities would have 
been ineligible for FSA farm loans because regulations stipulated that 
an entity owned by one or more other entities was ineligible for an FSA 
farm loan. The changes implemented in this

[[Page 60742]]

rule would allow such entities to be eligible for FSA loans as long as 
each embedded entity is at least 75-percent owned by embedded entity 
members actively involved in managing or operating the family farm, and 
provided that all other eligibility requirements are satisfied.
    Many new family farm entrants are neither raised on a farm nor have 
specific experience operating a farm business, but may have the 
experience or the knowledge necessary to manage a farm business. Prior 
to implementation of this rule, an FO applicant was required to have 
participated in the management of a farm business for at least 3 years. 
Changes implemented by this rule allow other non-traditional avenues, 
such as post-secondary education, farm apprenticeship, leadership or 
management experience while serving in any branch of the military, or 
extension programs to count toward the 3 year experience requirement.
    In 2012, FSA implemented the microloan program to provide greater 
flexibility in serving the needs of small and beginning farm 
businesses. This rule increases the maximum microloan size (and maximum 
direct operating loan indebtedness for borrowers receiving such loans) 
from $35,000 to $50,000.
    Combined, the three provisions in this rule are expected to enable 
FSA to benefit 2,210 farm businesses through direct and guaranteed loan 
programs. Changes to entity eligibility requirements are expected to 
enable FSA to serve an additional 660 entities. Changes in the farm 
business experience eligibility requirement are expected to impact 650 
beginning farmers who will be able to benefit from FSA credit programs 
earlier than under the prior regulations. In the context of the entire 
direct and guaranteed loan portfolio, the additional 1,310 farm 
businesses impacted by revised entity eligibility and farm business 
experience requirements should increase demand, though the overall 
impacts should be marginal. And finally, changes to the ML program will 
only affect new or existing borrowers with total direct operating loan 
indebtedness between $35,000 and $50,000, and are estimated at 900 
borrowers of which 100 are forecast to be new borrowers.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by 
the Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), generally requires an agency to prepare a regulatory 
flexibility analysis of any rule whenever an agency is required by APA 
or any other law to publish a proposed rule, unless the agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities. This rule is not subject to the 
Regulatory Flexibility Act because as noted above, this rulemaking is 
exempt from the notice and comment rulemaking requirements of APA and 
no other law requires that a proposed rule be published for this 
rulemaking initiative.

Environmental Review

    The environmental impacts of this 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 the FSA 
regulations for compliance with NEPA (7 CFR part 1940, subpart G). All 
changes included in the rule are required by the 2014 Farm Bill, with 
some minor discretionary decisions on the implementation methods. FSA 
concluded that this rule will not have a significant impact on the 
quality of the human environment either individually or cumulatively 
and, therefore, is categorically excluded and not subject to 
environmental assessments or environmental impact statements in 
accordance with 7 CFR 1940.310(e)(3).

Executive Order 12372

    Executive Order 12372, ``Intergovernmental Review of Federal 
Programs,'' requires consultation with State and local officials that 
would be directly affected by proposed federal financial assistance. 
The objectives of the Executive Order are to foster an 
intergovernmental partnership and a strengthened Federalism, by relying 
on State and local processes for State and local government 
coordination and review of proposed Federal Financial assistance and 
direct Federal development. For reasons set forth in the final rule 
related notice regarding 7 CFR part 3015, subpart V (48 FR 29115, June 
24, 1983), the programs and activities within this rule are excluded 
from the scope of Executive Order 12372.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, ``Civil 
Justice Reform.'' This rule will not preempt State or local laws, 
regulations, or policies unless they represent an irreconcilable 
conflict with this rule. The rule will not have retroactive effect. 
Before any judicial action may be brought regarding the application of 
the provisions of this rule, the administrative appeal provisions of 7 
CFR parts 11 and 780 are to be exhausted.

Executive Order 13132

    This rule has been reviewed under Executive Order 13132, 
``Federalism.'' The policies contained in this rule do not have any 
substantial direct effect on States, on the relationship between the 
Federal government and the States, or on the distribution of power and 
responsibilities among the various levels of government, except as 
required by law. 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

    This rule has been reviewed in accordance with the requirements of 
Executive Order 13175, ``Consultation and Coordination with Indian 
Tribal Governments.'' Executive Order 13175 requires Federal agencies 
to consult and coordinate with tribes on a government-to-government 
basis on policies that have tribal implications, including regulations, 
legislative comments or proposed legislation, and other policy 
statements or actions that have substantial direct effects on one or 
more Indian tribes, on the relationship between the Federal Government 
and Indian tribes or on the distribution of power and responsibilities 
between the Federal Government and Indian tribes.
    FSA has assessed the impact of this rule on Indian tribes and 
determined that this rule does not, to our knowledge, have tribal 
implications that require tribal consultation under Executive Order 
13175. If a Tribe requests consultation, FSA will work with the USDA 
Office of Tribal Relations to ensure meaningful consultation is 
provided where changes, additions, and modifications identified in this 
rule are not expressly mandated by the 2014 Farm Bill.

Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L. 
104-4) requires Federal agencies to assess the effects of their 
regulatory actions on State, local, and Tribal governments, or the 
private sector. Agencies generally must prepare a written statement, 
including a cost benefit analysis, for proposed and final rule with 
Federal mandates that may result in expenditures of $100 million or 
more in any year for State, local, or Tribal governments, in the 
aggregate, or

[[Page 60743]]

to the private sector. UMRA generally requires agencies to consider 
alternatives and adopt the more cost effective or least burdensome 
alternative that achieves the objectives of the rule. This rule 
contains no Federal mandates as defined in Title II of UMRA for State, 
local, and Tribal governments, or the private sector. Therefore, this 
rule is not subject to the requirements of sections 202 and 205 of 
UMRA.

SBREFA

    This rule is not a major rule under SBREFA (Pub. L. 104-121). 
Therefore, FSA is not required to delay the effective date for 60 days 
from the date of publication to allow for Congressional review. 
Accordingly, this rule is effective on the date of publication in the 
Federal Register.

Federal Assistance Programs

    The title and number of the Federal Assistance Programs, as found 
in the Catalog of Federal Domestic Assistance, to which this rule 
applies are:

10.099 Conservation Loans;
10.404 Emergency Loans;
10.406 Farm Operating Loans; and
10.407 Farm Ownership Loans.

Paperwork Reduction Act

    The regulatory changes in this rule do not require changes to the 
information collection requests currently approved by OMB control 
numbers of 0560-0155, 0560-0233, 0560-0236, 0560-0237, 0560-0238, and 
0560-0230.

E-Government Act Compliance

    FSA 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 other purposes.

List of Subjects

7 CFR Part 761

    Accounting, Loan programs--agriculture, Rural areas.

7 CFR Part 762

    Agriculture, Banks, Banking, Credit, Loan programs--agriculture.

7 CFR Part 763

    Agriculture, Banks, Banking, Credit, Loan programs--agriculture.

7 CFR Part 764

    Agriculture, Credit, Loan programs--agriculture.

7 CFR Part 765

    Agriculture, Agricultural commodities, Credit, Livestock, Loan 
programs--agriculture.

    For the reasons discussed above, FSA amends 7 CFR chapter VII as 
follows:

PART 761--FARM LOAN PROGRAM; GENERAL PROGRAM ADMINISTRATION

0
1. The authority citation for part 761 continues to read as follows:

    Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.

Subpart A--General Provisions

0
2. Amend Sec.  761.2(b) as follows.
0
a. Add the definitions of ``Embedded entity'' and ``Entity member'' in 
alphabetical order;
0
b. Revise the definition of ``Entity'';
0
c. In the definition of ``Established farmer,'' revise the introductory 
text and paragraphs (4) and (5) and add paragraph (6);
0
d. In the definition of ``Family farm'' in the introductory text, 
remove the word ``farm'' and add with the word ``business operation'' 
in its place;
0
e. In the definition of ``Operator'' add a sentence at the end; and
0
f. In the definition of ``Participated in the business operations of a 
farm'' in paragraph (3), add the parenthetical phrase ``(which can 
include a farm-related apprenticeship, internship, or similar 
educational program with applied work experience)'' immediately 
following the words ``worked on a farm''.
    The additions and revisions read as follows:


Sec.  761.2  Abbreviations and definitions.

* * * * *
    (b) * * *
    Embedded entity means an entity that has a direct or indirect 
interest, as a stockholder, member, beneficiary, or otherwise, in 
another entity.
* * * * *
    Entity means a corporation, partnership, joint operation, 
cooperative, limited liability company, trust, or other legal business 
organization, as determined by the Agency, that is authorized to 
conduct business in the state in which the organization operates. 
Organizations operating as non-profit entities under Internal Revenue 
Code 501 (26 U.S.C. 501) and estates are not considered eligible 
entities for Farm Loan Programs purposes.
    Entity member means all individuals and all embedded entities, as 
well as the individual members of the embedded entities, having an 
ownership interest in the assets of the entity.
* * * * *
    Established farmer means a farmer who operates the farm (in the 
case of an entity, its members as a group) who meets all of the 
following conditions:
* * * * *
    (4) In the case of an entity, is primarily engaged in farming and 
has over 50 percent of its gross income from all sources from its 
farming operation based on the operation's projected cash flow for the 
next crop year or the next 12-month period, as mutually determined;
    (5) Is not an integrated livestock, poultry, or fish processor who 
operates primarily and directly as a commercial business through 
contracts or business arrangements with farmers, except a grower under 
contract with an integrator or processor may be considered an 
established farmer, provided the farming operation is not managed by an 
outside full-time manager or management service and Agency loans will 
be based on the applicant's share of the agricultural production as 
specified in the contract; and
    (6) Does not employ a full time farm manager.
* * * * *
    Operator. * * * Operating-only entities may be considered owner-
operators when the individuals who own the farm real estate own at 
least 50 percent of the family farm operation.
* * * * *

PART 762--GUARANTEED FARM LOANS

0
3. The authority citation for part 762 continues to read as follows:

    Authority:  5 U.S.C. 301 and 7 U.S.C. 1989.


0
4. Amend Sec.  762.120 as follows:
0
a. Revise paragraphs (j)(1) and (j)(2)(i) through (iii);
0
b. Add paragraphs (j)(3) and (4); and
0
c. Revise paragraphs (k)(4) and (1)(3).
    The additions and revisions read as follows.


Sec.  762.120  Applicant eligibility.

* * * * *
    (j) * * *
    (1) The individual must be the operator of not larger than a family 
farm and the owner of a farm after the loan is closed. Ownership of the 
family farm operation or the farm real estate may be held either 
directly in the individual's name or indirectly through interest in a 
legal entity.
    (2) * * *
    (i) An ownership entity must be authorized to own a farm in the 
state or states in which the farm is located. An operating entity must 
be authorized to operate a farm in the state or states in which the 
farm is located; and
    (ii) If the entity members holding a majority interest are related 
by marriage

[[Page 60744]]

or blood, at least one member of the entity must operate the family 
farm and at least one member of the entity or the entity must own the 
farm; or
    (iii) If the entity members holding a majority interest are not 
related by marriage or blood, the entity members holding a majority 
interest must operate the family farm and the entity members holding a 
majority interest or the entity must own the farm.
    (3) If the entity is an operator-only entity, the individuals that 
own the farm (real estate) must own at least 50 percent of the family 
farm (operating entity).
    (4) All ownership may be held either directly in the individual's 
name or indirectly through interest in a legal entity.
    (k) * * *
    (4) If the applicant has one or more embedded entities, at least 75 
percent of the individual ownership interests of each embedded entity 
must be owned by members actively involved in managing or operating the 
family farm.
    (l) * * *
    (3) If the applicant has one or more embedded entities, at least 75 
percent of the individual ownership interests of each embedded entity 
must be owned by members actively involved in managing or operating the 
family farm; and
* * * * *

0
5. Revise Sec.  762.130(e)(4) to read as follows:


Sec.  762.130  Loan approval and issuing the guarantee.

* * * * *
    (e) * * *
    (4) The note is executed by the individual liable for the loan. For 
entity applicants, the promissory note will be executed to evidence the 
liability of the entity, any embedded entities, and the individual 
liability of all entity members. Individual liability can be waived by 
the Agency for members holding less than 10 percent ownership in the 
entity if the collectability of the loan will not be impaired; and
* * * * *

PART 763--LAND CONTRACT GUARANTEE PROGRAM

0
6. The authority citation for part 763 continues to read as follows:

    Authority: 5 U.S.C. 501 and 7 U.S.C. 1989.


0
7. Amend Sec.  763.5(b) as follows:
0
a. Revise paragraphs (b)(2) introductory text and (b)(2)(ii) and (iii);
0
b. In paragraphs (b)(2)(iv)(A) and (b)(2)(v)(A), add the word 
``family'' immediately before the word ``farm'';
0
c. Add paragraphs (b)(2)(vi) and (vii); and
0
d. Revise paragraph (b)(3).
    The revisions and additions read as follows.


Sec.  763.5  Eligibility.

* * * * *
    (b) * * *
    (2) Is the owner and operator of a family farm after the Contract 
is completed. Ownership of the family farm operation or the farm real 
estate may be held either directly in the individual's name or 
indirectly through interest in a legal entity. In the case of an entity 
buyer:
* * * * *
    (ii) If the applicant has one or more embedded entities, at least 
75 percent of the individual ownership interests of each embedded 
entity must be owned by members actively involved in managing or 
operating the family farm.
    (iii) An ownership entity must be authorized to own a farm in the 
state or states in which the farm is located. An operating entity must 
be authorized to operate a farm in the state or states in which the 
farm is located.
* * * * *
    (vi) If the entity is an operator-only entity, the individuals that 
own the farm (real estate) must own at least 50 percent of the family 
farm (operating entity).
    (vii) All ownership may be held either directly in the individual's 
name or indirectly through interest in a legal entity.
    (3) Must have participated in the business operations of a farm or 
ranch for at least 3 years out of the last 10 years prior to the date 
the application is submitted. Of those 3 years, 1 year can be 
substituted with the following experience:
    (i) Postsecondary education in agriculture business, horticulture, 
animal science, agronomy, or other agricultural related fields,
    (ii) Significant business management experience, or
    (iii) Leadership or management experience while serving in any 
branch of the military.
* * * * *


Sec.  763.7  [Amended]

0
9. In Sec.  763.7(b)(3)(ii), remove the word ``personal''.

PART 764--DIRECT LOAN MAKING

0
10. The authority citation for part 764 continues to read as follows:

    Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.


Sec.  764.51  [Amended]

0
11. Amend Sec.  764.51 as follows:
0
a. In paragraph (b)(2)(ii) remove the word ``personal'';
0
b. In paragraph (c)(1)(ii), remove ``$35,000'' both times it appears 
and add ``$50,000'' in its place.

0
12. Revise Sec.  764.101(1) to read as follows:


Sec.  764.101  General eligibility requirements.

* * * * *
    (1) Entity composition. If the applicant has one or more embedded 
entities, at least 75 percent of the individual ownnership interests of 
each embedded entity must be owned by members actively involved in 
managing or operating the family farm.

0
13. Amend Sec.  764.152 as follows:
0
a. Revise paragraphs (c) introductory text and (c)(2) and (3);
0
b. Add paragraph (c)(4); and
0
c. In paragraph (d), add a sentence at the end; and
0
d. Add paragraphs (d)(1) through (3).
    The revisions and additions read as follows.


Sec.  764.152  Eligibility requirements

* * * * *
    (c) Must be the owner-operator of the farm financed with Agency 
funds after the loan is closed. Ownership of the family farm operation 
and farm real estate may be held either directly in the individual's 
name or indirectly through interest in a legal entity. In the case of 
an entity:
* * * * *
    (2) An ownership entity must be authorized to own a farm in the 
state or states in which the farm is located. An operating entity must 
be authorized to operate a farm in the state or states in which the 
farm is located.
    (3) If the entity members holding majority interest are:
    (i) Related by blood or marriage, at least one member of the entity 
must operate the family farm and at least one member of the entity or 
the entity must own the farm; or,
    (ii) Not related by blood or marriage, the entity members holding a 
majority interest must operate the family farm and the entity members 
holding a majority interest or the entity must own the farm.
    (4) If the entity is an operator only entity, the individuals that 
own the farm (real estate) must own at least 50 percent of the family 
farm (operating entity).
    (d) * * * One of these three years can be substituted with the 
following experience:
    (1) Postsecondary education in agriculture business, horticulture,

[[Page 60745]]

animal science, agronomy, or other agricultural related fields,
    (2) Significant business management experience, or
    (3) Leadership or management experience while serving in any branch 
of the military.
* * * * *

0
14. Revise Sec.  764.402(a)(2) to read as follows:


Sec.  764.402  Loan closing.

* * * * *
    (a) * * *
    (2) For entity applicants, the promissory note will be executed to 
evidence the liability of the entity, any embedded entities, and the 
individual liability of all entity members.
* * * * *

PART 765--DIRECT LOAN SERVICING--REGULAR

0
15. The authority citation for part 765 continues to read as follows:

    Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.

Subpart I--Transfer of Security and Assumption of Debt


Sec.  765.401  [Amended]

0
16. Amend Sec.  765.401(a)(2), second sentence, by adding the word 
``entity'' immediately before the word ``member''.
0
17. Amend Sec.  765.402(e) as follows:
0
a. In paragraph (e)(1) remove the words ``that is'' and add the words 
``in which the entity members are'' in their place;
0
b. In paragraph (e)(2) remove the words ``original members'' and add 
the words ``original entity members'' in their place;
0
c. Revise paragraphs (e)(3) introductory text and (e)(3)(i);
0
d. In paragraph (e)(3)(ii), second sentence, add the word ``entity'' 
immediately before the word ``members''.
    The revisions read as follows.


Sec.  765.402  Transfer of security and loan assumption on same rates 
and terms.

* * * * *
    (e) * * *
    (3) A corporation, limited liability company, cooperative, or other 
legal business organization, the transferee must:
    (i) Have been a corporate stockholder, cooperative member or other 
member of a legal business organization, when the Agency made the 
original loan or will be an entity comprised solely of entity members 
who were entity members when the entity received the loan; and
* * * * *

    Signed on September 30, 2014.
Val Dolcini,
Administrator, Farm Service Agency.
[FR Doc. 2014-24046 Filed 10-7-14; 8:45 am]
BILLING CODE 3410-05-P