Farm Reorganizations and Their Impact on USDA Payments

GAO discussed its ongoing review of farm reorganizations related to the statutory payment limitation and their impact on Department of Agriculture (USDA) farm payments. GAO found that: (1) from 1984 through 1986, farm reorganizations increased as persons neared or met the payment limit; (2) the addition of new persons eligible to receive payments under the program increased its cost; (3) the continued increase in reorganizations could add 22,000 new persons to the payment program by 1989; (4) methods of reorganization include forming corporations or renting farmland for cash; and (5) administrative problems at the state and county level have resulted in reorganizations of questionable validity. GAO believes there are several options to improve the effectiveness of the payment limitation provision, including: (1) tightening the provision permitting individuals to form corporations, limited partnerships, or trusts that qualify for separate payments, without precluding farmers from establishing such entities for purposes of tax or estate planning; and (2) redefining what constitutes a person, to limit payments to persons actively engaged in farming. GAO also believes that USDA will have to develop clear and precise regulations and guidance to ensure effective implementation of proposed legislation at the local level.