In April, the Farm Service Agency (FSA), a branch of the U.S. Department of Agriculture (USDA), sent 15,000 letters requesting certification of income to persons who receive payments through certain farming programs. In order to qualify for these programs, the persons need to prove that their adjusted gross income (AGI) does not exceed specified limitations. The persons can prove compliance with the limitations by furnishing the last three years of federal income tax returns or by providing a certification letter from a CPA or attorney. The person is required by statute to provide “certification” from a CPA or other third party as an alternative to providing the actual tax returns.
Many of our members came to us questioning the letter they received from their clients. We have been working directly with the FSA to come to a resolution that meets both the FSA requirements as well as the professional standards of our members.
We encourage persons who receive the FSA letter to provide the last three years of their federal income tax returns for compliance purposes. However, in some situations those tax returns will not provide sufficient information to meet the compliance initiative so the only remaining option would be the certification letter from a CPA or attorney. For this purpose a certification letter of average AGI compliance was agreed upon by the FSA and AICPA. We also are providing a sample engagement letter and disclosure consent, which can be used in connection with providing the statement for average AGI compliance verification. The engagement and disclosure letters should be signed by the client before the member signs the certification.
CAUTION: The provisions containing the income limitations are found in 7 U.S.C. §1308. These are complex provisions outside of the scope of both the Internal Revenue Code and normal tax services provided by members. Before providing certification letters, members should carefully review these provisions. The definitions of terms such as “person” and “farm income” are complex and may require legal interpretation. Members are encouraged to seek assistance from legal counsel to properly interpret these provisions. While the certification letters are authorized under federal statutes, it is possible that the certification process may be construed as the unauthorized practice of law in some jurisdictions.
What is the FSA Letter specifically requesting?
The FSA letter is requesting either documentation that verifies that the person’s average AGI did not exceed the applicable limitations or acknowledgement that the income exceeded the limitations.
The FSA Letter provided for 30 days to respond from the April issuance date. The time to respond has expired - what can be done now?
The FSA has agreed to extend the filing period from its original due date in order for the FSA and AICPA to come to a resolution on a statement letter.
How soon should action be taken on the FSA Letter?
Immediate action should be taken at this point.
What are the alternatives if an FSA Letter is received?
The person who receives the FSA letter can provide one of the following to satisfy the FSA:
- copies of the complete federal income tax returns that were filed with the IRS for the years 2005, 2006 and 2007 if the inquiry is for 2009 or the returns for 2006, 2007 and 2008 if the inquiry is for 2010,
- certification from a CPA or an attorney that verifies that the person’s average AGI did not exceed the applicable limitations, or
- an acknowledgement signed by the person indicating that the person’s income exceeded the limitations and the 2009 and 2010 certifications were in error.
If submitting the prior year’s tax returns are an option to satisfy the requirements of the FSA, who should submit the returns?
The member should advise the participant to submit his/her prior year’s tax returns directly to their local branch of the FSA.
Why are we asking participants, instead of the member, to submit the prior year’s tax returns?
If the member were to send the tax returns directly to the USDA/FSA without obtaining the required written client consent, it would be a violation of IRC section 7216. Section 7216(b)(1)(A) provides an exception to the disclosure penalty for disclosure under “any other provision of this title.” That means that submissions to the Internal Revenue Service, which would fall under Title 26 of the USC (the Internal Revenue Code), do not require written client consent. Disclosures to any other federal agencies are not exempt from IRC Section 7216 unless they are pursuant to a court order (subpoena). Therefore, the member would be obligated to secure a written consent from the participant prior to the release of the tax returns.
The member can, without penalties, provide the participants with copies of their returns along with further mailing instructions.
What are the alternatives if the person qualifies for the farm program but files joint federal income tax returns that report income in excess of the AGI limitation?
The person may qualify on a separate basis; however that determination must be made in light of the USDA statute and regulations. Members should suggest that the person engage an attorney to verify that the person qualifies on a separate basis and the average AGI did not exceed the applicable AGI limitations. The attorney should then sign the sample statement letter. If an attorney is not engaged to provide the certification letter, we encourage our members to become familiar with the provisions of the USDA statute and regulations, and to use the sample engagement and disclosure consent before they sign the statement letter for average AGI compliance verification.
Who can provide the certification?
The USDA statute at 7 USC §1308-3A provides that the certification should be issued by “a certified public accountant or another third party that is acceptable to the Secretary…” It is our understanding that the Secretary of the Department of Agriculture has issued a regulation or administrative pronouncement that limits the definition of “another third party” to attorneys.
We encourage members to have the participants attorney’s sign the certification letter.
Where can I find the official posting of the statement letter?
The sample statement letter is on the FSA website.
Under “Related Topics” (top right box), CLICK “Notices”
In the “Notice Number” block, ENTER “PL-243”
click on statement letter.
Who do I contact if I have further questions?
You can contact the FSA local branches of your state or the FSA headquarters in Washington DC.
Within the AICPA you can contact Melanie Lauridsen, Tax Manager, at email@example.com.