On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA) into law. Section 22006 of the IRA provided $3.1 billion for USDA to provide relief for distressed borrowers with certain Farm Service Agency (FSA) direct and guaranteed loans and to expedite assistance for those whose agricultural operations are at financial risk.
USDA is implementing this provision with the goals of keeping borrowers farming, removing obstacles that currently prevent many borrowers from returning to their land, and improving the way that USDA approaches borrowing and loan servicing in the long-term. For many farmers, including those who have been hard hit by pandemic-induced market disruptions exacerbated by more frequent, more intense, climate-driven natural disasters, this assistance is vital if they are to continue producing the food, fiber, and fuel that are essential to the well-being of not only our rural communities but our Nation as a whole.
USDA has allocated up to $1.3 billion for initial steps to help distressed borrowers. This includes both automatic and case-by-case assistance. In total, between the Inflation Reduction Act and pandemic assistance, about 35,000 distressed borrowers will benefit from assistance.
On October 18, 2022, USDA provided nearly $800 million in assistance to distressed borrowers to help cure delinquencies and resolve uncollectable farm loan debts, including:
Nearly $600 million in payments to the accounts of approximately 11,000 borrowers who were 60 or more days delinquent on their FSA direct or guaranteed loan, as of September 30, 2022. For direct loan borrowers, the assistance includes payments to make their loans current and to cover their next annual installment. For guaranteed borrowers, these payments were equal to the amount the borrower was delinquent as reported in their most recent report from their lender and may require an accounting reconciliation.
Just over $200 million in payments to resolve the remaining debts for approximately 2,100 borrowers who had their loan collateral liquidated but had remaining debt that was or was due to be referred to the Department of Treasury for offset or collections. This action will mean that these borrowers will no longer face garnishment of their tax refunds, Social Security benefits, or other Federal benefit payments.
Additionally, on October 18, 2022, USDA also began a process to provide approximately $66 million in payments from available pandemic assistance funds to provide similar levels of assistance to direct loan borrowers who used disaster set-aside as an option in response to the COVID-19 pandemic. Up to 7,000 direct loans for up to 3,000 borrowers who were struggling to make their scheduled direct loan payment during the pandemic and used disaster set-aside to delay their payment to the final maturity date of their loan will automatically receive a payment for the set-aside amount that remains outstanding. The distribution of additional payments for the majority of eligible disaster set-aside accounts was completed in February 2023. The remaining payments for disaster set-aside accounts are anticipated to be made in March 2023.
USDA also will work with borrowers one-on-one to address complex cases as well as help producers with cashflow challenges.
First, FSA will work with about 1,600 farm loan borrowers with more complex cases, including borrowers facing bankruptcy and foreclosure, with delinquencies of about $330 million have the opportunity to receive similar assistance to cure delinquencies and, if a direct loan borrower, cover their next annual installment. These accounts will require manual, case-by-case review by the FSA. The aid provided in these cases may vary based on the necessities of the case and may include additional payments to resolve foreclosure fees. FSA will contact direct borrowers, or a guaranteed borrower’s lender, to validate payment amounts and anticipates these payments to begin in 2023.
Second, FSA will use existing loan servicing procedures to identify whether an operation has sufficient cashflow to make the next loan installment payment (also known as financially distressed borrowers under existing FSA procedures). Through this procedure, qualifying borrowers can request FSA to cover the next installment. USDA estimates that up to 14,000 borrowers may qualify for estimated assistance of $175 million. FSA will directly notify direct loan borrowers of the process to initiate a review of sufficient cashflow that triggers potential assistance. These additional opportunities for financially distressed borrowers to receive a payment are anticipated to begin in 2023.
Recipients will receive an Internal Revenue Service Tax Form 1099-G from FSA if they receive payments of $600 or more, which are subject to Federal and State Income Taxes. Tax education resources including a series of free webinars are available for producers on the tax impacts of debt relief. More information and webinar registration is available at farmers.gov/taxes.
Also, this publication from Ruraltax.org presents the basics about Section 22006, the tax consequences, tax management methods to consider, and farm management considerations. Borrowers with at-risk agricultural operations.
If your FSA account was classified as "Currently Not Collectible" and you received an IRA assistance payment that paid-off your loan, you may have been mailed an annual account statement on form FSA-2065. FSA is required to send this year end statement, which includes standard verbiage that states the borrower is "Not Released From Liability-Eligible For Further Collection Action". Please disregard this statement as it is not an accurate reflection of your account's current standing. you are no longer liable for the debt that was paid-in-full and FSA will not take further collection action.
This first round of automatic and case-by-case assistance is focused on “stopping the bleeding” and helping to ensure distressed farm loan borrowers can stay in or re-enter the business of agriculture and continue feeding their communities. This initial investment of up to $1.3 billion is just the first step to provide assistance to distressed farm loan borrowers. This effort will ultimately also include adding more tools and relaxing unnecessary restrictions by leveraging the remaining assistance made available by Congress through the IRA. Further assistance and changes to the way USDA approaches borrowing and loan servicing will be made in subsequent phases.
For more information, contact FSA at your local USDA Service Center or through the FSA call center at 877-508-8364 between 8 a.m. and 7 p.m. Eastern. Additional information can be found here:
October 18, 2022 news release: USDA Provides Payments of nearly $800 Million in Assistance to Help Keep Farmers Farming
Frequently Asked Questions about Inflation Reduction Act Assistance for Distressed Borrowers
Fact Sheet: Inflation Reduction Act Assistance for Distressed Borrowers
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