by Monte Nevitt
Actively Engaged Status and Management
Payment Limitation rules dictate that in order for a partner to be considered actively engaged, he she or it must provide its commensurate share of management inputs. Specifically – management must be significant, independent, and measureable. Depending upon how a farming operation is conducted, active personal labor may or may not be needed. (Often times labor functions are hired). Management, however, is always critical that it be provided by the first level members and in their proportionate share in which they pull profits or losses from the partnership.
What does significant mean? It must be critical to the profitability of the farming operation. If a partner has responsibility for the scheduling of irrigation – we know that the amount and timing of irrigation is critical to yield and profitability – we then double check only that this duty is commensurate with another partners responsibility for tillage operations or marketing of crops, etc..
Independent. This means that each partner must step up and provide their own contribution of a needed input, independent of any other partner. Ultimately – this means that no one or two individuals should be in the background providing all critical management. If this is the case, the FSA County Committee is charged with the responsibility of denying payment to any individual who fails to meet commensurate share rules (freeloaders who are not pulling their weight in the partnership).
Measurability? Finally – recent rule changes require that these management inputs be measureable. Is there a paper trail that documents that partner A provided his inputs of management over the irrigation. Is there a billing from the irrigation district that bears his name? Is there a set of minutes that reflects a report from this individual for that given area.
All things considered – if the partnership is truly run as a joint operation which not only allows for -- but calls for input from each member – and further leaves a paper trail that the County Committee can review come time for the year end review or audit, you will save yourself a lot of grief. (This allows the committee to focus on your capital, land, equipment, cash rent tenant rules and other items of equal importance)!
Give us a call if you have concerns about the approach you are employing or if you feel a need to clean anything up so that it passes muster!
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