July 2026
By Larissa Zeiler
CPA, Leffel, Otis & Warwick, P.S.
In June, the FSA issued letters to producers requesting them to determine if their entity is a Qualified Pass-Through Entity. The applicable options given are:
- Corporation
- S-Corporation – Pass Through
- Limited Liability Company
- Limited Liability Company – Pass Through
Helpful Hints:
Here are some helpful hints if you are uncertain. In general, entities such as s-corporations and LLCs are considered pass-through entities, meaning they pass their income down to the individual owners via a Schedule K-1, rather than paying tax on the income at the entity level. To help determine your entity classification, look at the top left corner of the first page of your entity’s federal income tax return. If your entity files federal income tax Form 1120, you are a corporation. If your entity files federal income tax Form 1120S, you are considered an S-Corporation and should mark “S-Corporation – Pass Through.” For limited liability companies (LLCs), it is very important to mark the correct entity option on the form. The vast majority of farm LLCs are pass-through entities, and those producers should mark “Limited Liability Company – Pass Through.” Alternatively, there are rare situations when an LLC is taxed as a corporation, meaning the LLC pays tax on the income, rather than passing it to the owners. In this case, the producer should mark “Limited Liability Company.” This is generally uncommon, however. If you have questions, please contact your CPA for verification.
Changes – and how it can work in the farm’s favor:
The FSA’s request letter is in preparation for an upcoming expansion of payment limitations and payment eligibility provisions, allowing for more equitable treatment of business entities. Previously, farm operations structured as an LLC or S-corporation were limited to a single payment limitation. Under the OBBBA passed last July, these qualified pass-through entities are now treated the same as partnerships and joint ventures. The AGI test will now be performed at the individual owner level, rather than the entity level. This allows income to be spread across several owners, like the FSA’s existing general partnership rules. For pass-through entities with high income, this could make the difference between receiving a full FSA payment and receiving no payment.
Deadline:
The changes go into effect beginning with the 2026 crop year. The deadline to update your Farm Operating Plan, CCC-902 is September 15th, 2026. However, many county FSA offices are asking for the AD-2047 form to be returned sooner. Lincoln County’s FSA office is requesting the form by July 11th, 2026, to avoid delays in program payments. For more information, see USDA Expands Payment Limitation and Payment Eligibility Provisions for Farmers | Farm Service Agencyand watch our Facebook for future posts on FSA payment limitation changes.