Everything you don't want to know about ERP and PARP

Narrator: We are grateful that you are joining us for another episode of the Ag View Pitch, as we know that your time is very valuable. Our team at Ag View Solutions is always here for you for any questions or comments that you may have. Please feel free to reach out to us at cbarron@agviewsolutions.com. And now, here is your host, Chris Barron.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and we have Paul Niefer and Chris Barron here for a conversation around the Emergency Relief Program, ERP. We're also going to talk a little bit about the Pandemic Assistance Revenue Program, to make sure I get these things right. And we're also going to talk a little bit about the FSA signup and some of the things to keep in mind there as we consider ARC and PLC and a few of those other things. So Paul, welcome. How's it going?

Paul

Neiffer: Pretty good, but, uh, I, I don't think we could get any more sexy topics than these. Yeah, this is ARP and ERP and ARC. Yeah. That's about as sexy as I ever want to get it.

Chris

Barron: Yeah, it's kind of like about as sexy as alphabet soup.

Paul

Neiffer: Yep.

Chris

Barron: Yep. You know, ERP and PARP and PLC and ARC and all this.

Paul

Neiffer: Yeah, it's getting worse.

Chris

Barron: Yeah. So, but I think it's— these are very important topics because it affects a lot of listeners here and, and some of them might not even know it, right?

Paul

Neiffer: Yeah. Well, most of the local offices really don't know it. They haven't been trained yet.

Chris

Barron: Right.

Paul

Neiffer: My understanding for most of the local offices. Is they're going to get trained probably next week. So, and it starts essentially Monday.

Chris

Barron: Yep. Yeah. So, so anyway, um, I guess let's, let's kind of dive into some of this stuff, Paul. And again, thank you very much for being here too. It's nice having you in person here, um, at the, at the mic in person.

Paul

Neiffer: And so, uh, um, it may happen more often.

Chris

Barron: Yeah.

Narrator: Yes.

Paul

Neiffer: For the listeners out there, many of you know I was a principal at CliftonLarsonAllen. But in our firm, our partnership agreement, at age 62 I have to retire, and I turned 62 last year, so now I get to do more fun stuff maybe.

Chris

Barron: Yeah, well, you, you were an expert farm CPA, and you're going to continue to be the expert farm CPA. Exactly. Keep us all informed and, and working with us with some of our peer groups and working with us with some of our clients. And, um, we're excited to have you on board helping us a lot too. It's, uh, very important. Your knowledge is Well respected and we're excited to have you working with us with Ag View too. Sure, sure. So, all right, well let's get underway here. So the Emergency Relief Program, let's start there. Talk a little bit about again what that is. This is Phase 2. So first of all, explain what it is for those who need a refresher.

Paul

Neiffer: So there was about $10 billion that was set aside back in, I believe, August of 2021 that was designed pandemic relief. It was additional pandemic relief. Relief. And so FSA took about, oh, 7, 8 months to come out with Emergency Relief Program. Phase 1 is very simple. If you collected crop insurance, you got an extra— I'm going to call it a top-up, you know, you got an extra 5, 10, 15, 20% on top of what you collected. It's very easy. FSA did all the work. You didn't— essentially, you signed the thing and you were done, right? Phase 2 It's not going to be that easy. Phase 2 is based on a— based on your revenue as reported basically on your Schedule F. You look at what's called a benchmark year, so it's either 2018 or 2019. You get to pick the best one, so that, that is helpful.

You get to pick the best of '18 or '19, but then you have to multiply that revenue, and this is crop revenue. My understanding, and it's still being hashed out, 'cause the fact sheet is a little bit confusing. And I've gotten some, I'm gonna call it, I'm not quite sure if it's accurate advice yet or not. My understanding, it's only on crops. It's not on livestock. It's only on crops. We'll have to clarify if that's different. But you multiply that revenue by 70%. And then you look at your revenue for 2020 and your revenue for 2021, the qualifying revenue, it's qualifying revenue. And if that 70% of '18 or '19 is greater than 100% of '20 or '21, then you will collect a payment. Now, Chris, what happened to crop prices in '20 and '21? Didn't they go up?

Chris

Barron: Yeah. Yes.

Paul

Neiffer: And so if you're comparing '18 and '19, for most of our farmers, they're not going to qualify for any extra payment under Phase 2. Plus because of the price increase, the price increase. This is not based on margin, it's only based on price. So I, I just can't see a lot of farmers in the corn and soybean belt, especially in wheat, where they really had that increase in price. I, I can't see them collecting much unless they purposely— I'm going to say purposely— didn't sell much in '20 or '21, maybe because they had a bunch of money coming in from CFAP and so on. They just didn't sell much, or just the way it happened, they didn't have much in the way of sales.

Chris

Barron: So that would include deferred pay?

Paul

Neiffer: That includes deferred pay. So if the deferred pay comes in, that's going to be included as part of the revenue. It isn't based on the crop year, it's based on the year—

Chris

Barron: the income—

Paul

Neiffer: you actually report the income. So, and then once you determine that, so let's say a farmer determines, hey, I qualify for $100,000. Well, the maximum initial payment when you sign up is only going to be $2,000. So you're going to get a check maybe for $2,000, but if you got—

Chris

Barron: if you qualify for $100,000, you're getting a check for $2,000 at the beginning. Okay, okay.

Paul

Neiffer: And then if you got any payment under Phase 1, then you have to reduce that $2,000 by any payment under Phase 1. So if you got a payment under Phase 1, you're not going to get any payment at all initially. Now down the road you might, so The final payment is going to be based on how much claims they have. They've set aside, my memory is about $1.2 billion for paying out under Phase 2. The estimate in the regulations is about $1.5 billion that they think the claims are going to come in. So they're going to pay about 80%. If you're socially disadvantaged, a veteran, etc., then you're going to get an extra 15%. So what that means, let's say they elect to pay everybody 50%, a veteran is going to get 65%. So that's what the extra 15% is. So this is going to be complicated.

It's going to require the farmer to work with their CPA or tax advisor to sort of, hey, where did we report this? Also, if you had crop insurance and you elected to defer the crop insurance, our understanding is you pick it up in the year you received it, not the year you reported it on your tax returns. So you have to watch out for that. The same on deferral. Well, livestock, it's not going to count, it sounds like. So, so it's going to be complicated. You're going to have to work again with your tax advisor. And what is the tax advisor working on right now?

Chris

Barron: It's tax season.

Paul

Neiffer: It's tax return season. So your chance of really having them be able to help you much right now, somewhere between slim and none. You have until June 3rd to actually sign up for it, so you do have plenty of time, and they may extend that. But, uh, you know, they— their timing on this is not great. Their definitions of allowable gross revenue in the fact sheet is a little problematic in my opinion. It doesn't really do a wonderful job of explaining what is allowed and what is not allowed. Again, like on this livestock, when you read the fact sheet It looked like they were saying certain livestock wasn't allowed. Well, they have a comparison between PARP and ERP fact sheet, and in that fact sheet it says no livestock is allowed. So okay, well, that's pretty clear, maybe. And then it also says crops used for grazing are not allowed.

Well, Chris, can you tell me what crops used for grazing is?

Chris

Barron: Everything.

Paul

Neiffer: Yeah, so, you know, for— I mean, if you sell alfalfa hay to the dairy Is that crops used for grazing? Is that what they're saying? I just don't know. So we're asking for some clarification on that. Hopefully we get that fairly soon. So that's ERP Phase 2.

Chris

Barron: Let me ask a question here though then. So if, if you didn't collect on any insurance on either of those 2 years, '19 or '20, then— and didn't collect anything on Phase 1 do you even try for anything in Phase 2?

Paul

Neiffer: That's actually when you want to try for it, because that's when you're likely—

Chris

Barron: so, so like in my operation, we didn't collect anything on Phase 1, we should be trying to collect something on Phase 2?

Paul

Neiffer: Yeah, yeah, if you meet that. But, uh, Chris, I've already looked out, you're not gonna go.

Chris

Barron: Okay, well good, I'm, I'm almost glad I made it easy for you. Yeah, I made it easy for you because this doesn't sound super Simple, fairly complicated. Now tell me about the operation that's listening that it's like, better go back, rewind, listen to this again because it's very important for them.

Paul

Neiffer: Who is that? To me, the rule of thumb is if you did not collect anything on Phase 1 and you didn't have any crop insurance receipts during 2020 and 2021, which likely means you didn't collect anything under Phase 1, then you really need to look at this.

Chris

Barron: And you're in because your income was low enough.

Paul

Neiffer: If your income is low enough.

Chris

Barron: In that year.

Paul

Neiffer: Yeah. If you look at your tax returns, your schedule, let's say you're filing a Schedule F, you look '18, '19, '20, and '21. If '18 and '19 is less than '20 and '21, skip it. You don't even, you're not going to qualify.

Chris

Barron: Right.

Paul

Neiffer: If the income in '18 and '19 is at least 135% higher than it was in '20 and '21, Better do the work. Better do the work.

Chris

Barron: Okay. All right. I probably have other questions, but my brain is getting fried here.

Paul

Neiffer: Hey, I'm a CPA, my brain's fried already on this, so— and I've blogged on it probably 8 or 9 times already, including twice today.

Narrator: Yeah.

Chris

Barron: So if somebody wants to look at that blog, throw that out there right now.

Paul

Neiffer: Yeah. So I actually started a new blog, it's farmcpareport.com. So www.farmcpareport.com.

Chris

Barron: Okay.

Paul

Neiffer: Easy to sign up for, it's free, so that's, that's a good sign. At least right now it's free.

Chris

Barron: Yeah.

Paul

Neiffer: And like I said, I've gone over the original details. As we get additional guidance, I've been updating that and so on. So I think, yeah, the bottom line, if you didn't collect under Phase 1, then you need to look at it for sure on Phase 2. And also, if you got a full payment on Phase 1, you know, you maxed out, don't even waste your time on Phase 2 because the combined limit is for both Phase 1 and Phase 2.

Chris

Barron: And that's that $100,000?

Paul

Neiffer: $125,000 for— corn, soybeans, those type of entity per entity per person. And then if you have specialty crops, which in the I states there's not a lot of it, but our states there are, you know, vegetables, fruits, legumes like peas, chickpeas, and so on. That's an additional $125,000. And then if you can prove that more than 75% of your gross income, your AGI, is from farming, then that doubles for corn, soybeans, and so on. And for specialty crops, it actually goes up an extra $775,000. So that can be a pretty big deal.

Narrator: Okay.

Paul

Neiffer: But if you've already maxed out on Phase 1, skip it on Phase 2. You won't get any extra.

Chris

Barron: Okay. Sounds good. Well, that's fun. So let me—

Paul

Neiffer: I told you it was sexy.

Chris

Barron: Yeah, this is— it's hot. All right. It's like my brain's frying.

Narrator: So.

Chris

Barron: All right. The next one is the Pandemic Assistance Revenue Program, P.A.R.P.

Paul

Neiffer: Yep. P.A.R.P.

Chris

Barron: What do you got?

Paul

Neiffer: Okay, so that one, that's for everybody. So even if they collected under Phase 1, Phase 2, they need to look at it again. I, I think it may be difficult for them to collect, but remember on ERP Phase 2, you had to have a 30% reduction in your benchmark year, '18 or '19. Here you only need a 15% reduction, and it includes livestock. So maybe for a lot of those hog farmers that didn't collect a big payment, you know, they had that issue in 2020 and they didn't get enough, then I think PARP is more likely to make a payment for them. The, the drawbacks to it is that FSA or USDA in the regulations indicated they thought they're going to be about $2.5 billion of claims but they're only setting aside $250 million. So if your calculated claim, let's say, is $250,000, you're going to collect $25,000. So it's— it's going to be some assistance, but not enough assistance.

I sort of wish they adjusted Phase 2 down quite a bit and made it more for PARP. More revenue is allowed under PARP. Livestock is allowed other than like sporting purposes and that type of stuff. But hogs, cattle, and so on. That, that's allowed. Um, and that, I would say that's the biggest difference between PARP and ERP Phase 2 is the fact that supposedly livestock is allowed under PARP, and to a degree, to a degree. And again, you're going to collect 10 cents on the dollar. So you have two separate calculations, you have two separate forms. Uh, ERP Phase 2 is Form, my memory's right, 521 and 521A. And then on PARP, the form is 1022-A, 1022 and 1022-A, I believe that's correct. I've not seen the forms yet. They're not, maybe they are today. I checked either yesterday or the day before and they still weren't available.

Chris

Barron: So while your CPA is looking for something to do, they can help you when they're not busy doing tax returns and stuff, right?

Paul

Neiffer: Yeah, they're not going to be, you know.

Chris

Barron: What are the deadlines on this stuff?

Paul

Neiffer: So again, it starts this Monday the 23rd. January 23rd is when you can sign up for it. But again, the local office hasn't been trained, so don't call them on Monday. You're probably not going to get anywhere.

Chris

Barron: We're going to release this, I think, about Wednesday. Okay.

Paul

Neiffer: So, so good. So by the time—

Chris

Barron: around the 25th.

Paul

Neiffer: Yeah. By the time you get this, it's already been available.

Chris

Barron: Okay.

Paul

Neiffer: And then you have until June 3rd. So you got 5 months.

Chris

Barron: Okay.

Paul

Neiffer: Or 4 months. You got February, March, April, and May.

Chris

Barron: Okay. So simple, just get a hold of your CPA and just say, figure it out for me.

Narrator: Yeah, yeah.

Paul

Neiffer: And skip doing my tax return. Yeah, yeah. No, that's— I, I think if you have a good tax preparer, they're really not going to be able to do a lot of help for you until after— until end of March or April 15th, May, when you're busy planting. When, when everybody's busy in the field, then they can turn the CPA loose doing some stuff and And again, supposedly this form is going to be some type of a worksheet. You can fill out that worksheet. You look at your tax returns, you may be able to fill it out fairly accurately and then just have your CPA review it. Also, I've volunteered now, I'm doing it for a fee, but I volunteered to A, review your tax returns and I can tell you fairly quickly, yeah, you qualify or no, you don't.

Chris

Barron: Just like you looked at mine and said you don't qualify.

Paul

Neiffer: Yeah, it was pretty simple. And then if you need help on filling out the application, I can help with that.

Chris

Barron: So what happens— this is a kind of an off-the-wall question I'm going to ask before we get into the FSA stuff here— but what if, you know, all the complexities here and all this stuff, and, you know, I always go back to the Damien Mason statement of, you know, make it easy to do business with you or otherwise people won't do business with you. Okay, the government's making this really hard to do business with them in this regard. So what happens if there's money that's not realized, if they're— if that's not being used, there's money still sitting there? Does Does that get reallocated into some other program or what happens there?

Paul

Neiffer: I think due to the fact that the P.A.R.P. is limited to 10%, their estimate is 10%, they're gonna be able to bump that up maybe to 20% or 30%. So there'll be money there.

Chris

Barron: Well— What I'm saying though is what if there's excess money like in the phase 2 in the Emergency Relief Program? You said what, $10 billion?

Paul

Neiffer: Yeah, it was originally $10, well, they've already spent $7.7 billion.

Chris

Barron: Oh, so there's about $3, or $2.

Paul

Neiffer: Yeah, there's only about a little bit over $2 billion left. Yeah, okay. It's going to get spent.

Chris

Barron: Yeah, $2 billion will go quick then. I— okay, gotcha.

Paul

Neiffer: All right. And there are quite a few— I know the rice growers, really a lot of them didn't have a great year, right? Um, you know, a lot of the vegetable people in 2020 had some issues. Uh, the other thing to remind you on PARP that I forgot to mention, it's only for 2020. It's not for '21. It's only for year 2020. Has to be a calendar year. So if you're a fiscal year corporation, you have to convert your allowable gross revenue to a calendar year. So that's, that's going to be more work. You definitely may or may not need your tax advisor to help you on that.

Chris

Barron: Well, it's something that's complicated, but something that everybody should take a few minutes and just at least review, see if they qualify or not, and then make the decision of how much, how deep you go.

Paul

Neiffer: I think for most farmers, um, they could spend 30 minutes to an hour and they're going to be able to, you know, have a pretty good idea whether they qualify or don't qualify. Okay. And again, I would certainly suggest go to the blog. There's more details on the blog than we can share on, you know, on the podcast.

Chris

Barron: Yep, we'll do that at the end again here too. So, so we've got the Emergency Relief Program talked about, we've got the Pandemic Assistance Revenue Program discussed. Now the last and final thing that applies to everybody here again is the FSA office sign-up, which the deadline is March 15th, same as the crop insurance deadline. So the discussion there is, you know, typically ARC versus PLC. If you don't show up and do anything, whatever you had last year is what's going to get assigned to you whether you go in there or not. Talk a little bit about the two, the difference between the two, and kind of what you're seeing or—

Paul

Neiffer: yeah, so again, think about PLC is price loss coverage. It just says you get a payment if the price drops low enough. And how low is low? Corn has to all the way go drop all the way through $3.70, soybeans has to go below $8.40, and then wheat, it has to go below $5.50. So if that happens, the last thing you want to do is be collecting ARC and PLC because you're losing a lot of money. I mean, that's the reality. Yeah. So PLC, the chance of it paying anything for the major crops, you know, wheat, corn, and soybeans, somewhere between slim and none, you know. And you, you don't want a payment. Now on ARC, it's a combination of yield at the county level and price. So let's say that corn does drop down to $5.50, that's still $1.80 above, above the $3.70 for PLC, so you're not going to get a payment there.

But at $5.50, if the county yield happened to be, let's say, 20 or 30% lower because we had a drought, then ARC is going to make a payment. So For most of the major crops, I would say I'd be leaning toward ARC, right? For sure. Now, if you're a farmer and you have lots of farms, um, and you have some farms that maybe the PLC yield is pretty high, then maybe I would hedge my bets. I would have some PLC and I'd have some ARC. Also, if you're a farmer that really wants to take advantage of SCO which we sort of had that discussion offline and, you know, maybe margin is better anyway, margin program. But if you want to take advantage of SCO, then you have to elect PLC. So those are some of, of the, of the criteria. Now, again, like I said, for this year, for the crop year 2023, your chances of collecting under PLC is highly unlikely. Highly unlikely.

Chris

Barron: Yeah.

Paul

Neiffer: But again, if you want to take advantage of SCO, you want to bump up your crop insurance coverage. That requires you to do PLC.

Chris

Barron: Right. All right, well, um, the first part was really fun. The second— the, the third part was really good, you know, a lot of complexity in that front end, but I guarantee you there's people listening to this that basically everybody at least needs to review and see where they're at to make sure that they do their due diligence on, on that emergency relief program, because there's a lot of people that that are probably eligible for that, that really need to—

Paul

Neiffer: And FSA does have a website for both. You know, there's a fact sheet on there. The fact sheet for ERP is about 4 pages long, 5 pages long. It has quite a bit of detail. It still lacks some clarity. PARP, similar. And then there is a fact sheet that indicates here's the differences between the two programs. They're very, very similar, but there are some key differences.

Chris

Barron: Okay, um, last thing, um, just kind of real quick, anything on, you know, while I got you sitting here, on the tax side of things that farmers need to pay attention to? And we are going into that tax season, people are rounding up stuff, they're meeting with their CPAs. Any, any quick comments on that?

Paul

Neiffer: The nice thing about 2022, there really wasn't any major changes. You know, as we're coming into 2023, bonus depreciation where you can deduct 100% of your farm equipment, well, all farm assets other than farmland, now drops to 80%. So you're not going to be able to automatically deduct 100%. You're going to be limited to 80%. That's really, I mean, the SECURE Act passed, that has to do with retirement. There's very favorable procedures there where there's incentives to set up pension plans for your employees, profit sharing plans and so on. But that's still pretty minor in the scheme of things. As far as any major tax changes coming in the next 2 years, likely not going to happen. You know, the Republicans control the House. The Senate is still controlled by the— or the Senate is still controlled by the Democrats.

And you got President Biden thinking about other things, I think. So, you know, and I think a lot of states are— well, including Iowa, you know, they're, they're coming out with some tax relief. So I think we're in pretty good shape for 2 years. After that, it's going to depend on the big election.

Chris

Barron: Yeah, it's paying attention to your state. Your state information too, because that's, that's where the variability is kind of lie.

Paul

Neiffer: Yeah, we have lots of clients in, you know, my previous life we had lots of clients that we could get their federal liability maybe close to zero, but the state liability might be $100,000 or $200,000 or $300,000. I mean, it was that big of a difference, right?

Chris

Barron: Yeah. All right, well, Paul, um, as usual, you come with like a huge amount of information, um, and A lot of knowledge. And again, if people want to catch up on the, um, your blog, what is that again?

Paul

Neiffer: So the blog is farmcpareport.com, and then I do have a new email address. It's sort of temporary. It's farmcpa@outlook.com. I'm in the process of getting a real website set up and so on. I'll have a new email, but that's still probably a couple months away.

Chris

Barron: Okay, that sounds good. Well, again, as usual, thank you very much. Really appreciate you being here in person too.

Paul

Neiffer: And you're welcome. And this time it wasn't 20 below when I showed up. Yeah, that's, that's pretty good for the wintertime.

Chris

Barron: Yeah, we'll take what we can get. And when people are listening to this, you and I are going to be in Florida at the Ag View Executive Business Conference.

Paul

Neiffer: And it better not be 20 below there.

Chris

Barron: It sounds like it's going to be sunny and 70s, so we'll take it.

Paul

Neiffer: I'll definitely take it.

Chris

Barron: All right, so that sounds good. And again, Paul, thank you, and thank you to everybody for listening, and we will catch you again next time on the Ag View Thanks.