In August 2023, the U.S. Department of Agriculture (“USDA”) announced it is providing $530 million in additional financial assistance for certain borrowers of farm loans. This assistance is part of the $3.1 billion allocated to USDA under the Inflation Reduction Act (“IRA”) to help certain “distressed borrowers” whose farming operations are at financial risk. Since the enactment of the IRA, USDA has provided approximately $1.5 billion in financial aid to certain agricultural borrowers. Under this round of IRA debt relief assistance, USDA is providing direct payments to guaranteed Farm Loan Programs (“FLP”) borrowers who are “facing financial risk.”

USDA’s Farm Service Agency (“FSA”) administers the FLP to provide financing to agricultural borrowers so they can purchase farmland, inputs, livestock, and equipment in order to run their farming operation. FSA provides direct and guaranteed loans. Direct loans are made directly from FSA to the borrower, while guaranteed loans are made by a private USDA-approved lender with the backing of FSA.

In general, borrowers are at financial risk or “distressed”, and thus qualify for direct financial assistance, if they satisfy one of three options. First, guaranteed FLP borrowers are facing financial risk if they have an outstanding overdue loan payment and did not receive an automatic payment in 2022 because their loan was not 60 days delinquent as of September 30, 2022, or their loan became delinquent between that date and October 18, 2022.

Second, FLP borrowers who restructured their guaranteed loans between March 1, 2020, and August 11, 2023, to modify their loan maturity date can qualify for payments. However, under this option, payments are available only to borrowers whose loans were not paid in full before August 11, 2023. Under this option, qualifying distressed borrowers will receive a payment that is the lessor of (1) the restructured annual installment, or (2) the amount to satisfy the remaining loan balance.

Third, guaranteed FLP distressed borrowers qualify for a payment if, between March 1, 2020, through September 30, 2022, they received from their lender a deferral or payment extension for at least 45 days in response to the coronavirus pandemic, disasters, or other adverse impacts to revenue. Payments for borrowers under this option do not exceed $100,000 and are the lessor of (1) the deferral or extension amount of the guaranteed loan, or (2) the remaining outstanding loan amount. As under the second option, payments are available only to borrowers who had an outstanding guaranteed loan balance prior to August 11, 2023.

Distressed FLP borrowers that qualify to receive assistance under multiple options will receive a payment based on the option that grants them the greatest payment amount. However, assistance under this round of payments is available only to FLP guaranteed borrowers who did not or will not receive a direct payment for the same guaranteed loan under the $800 million initial IRA assistance USDA announced in October 2022.

Borrowers that qualify for this round of debt relief payments should anticipate receiving a check issued by the U.S. Treasury Department that is jointly payable to the borrower and their lender. Because payments are being sent directly to qualified borrowers, there is no application process for this assistance. Additionally, qualified guarantee borrowers will receive a letter from FSA instructing them to meet with their lender in order to process and apply the payment to their guaranteed loan accounts.

Guaranteed FLP borrowers that qualify for loan assistance under this round of payments but are currently in bankruptcy are addressed by the case-by-case review process that USDA established specifically for complex cases under a previous round of debt relief payments. Under the review process, FSA manually reviews borrowers’ loan accounts to provide aid “based on the necessities of the case,” which may “include additional payments to resolve foreclosure fees.”

Some guaranteed FLP borrowers that are financially at risk will receive financial assistance based on the amount they owe on their “federal debt [that is] subject to debt collection and garnishment after the liquidation of their guaranteed loan account as of July 31, 2023.” According to USDA, this will allow some distressed borrowers to return to  their farming operations. For these borrowers, their federal debt will be automatically paid by FSA, and the agency will send letters to these borrowers informing them of the payment made to their federal debt.

Importantly, the assistance borrowers receive will be reported to the Internal Revenue Service (“IRS”). Borrowers receiving debt relief payments will receive a 1099 form from FSA. Payments over $600 are subject to federal and state income taxes and will be reflected on a borrower’s annual 1099 form. USDA encourages borrowers to consult a tax professional with questions concerning any IRA assistance they receive and to visit the agency’s website for tax-related resources here.

Guaranteed borrowers that qualify to receive debt relief may choose to opt out. Instructions for opting out will be contained in the letters sent from FSA to qualifying borrowers.

Conclusion

This latest round of payments marks the fourth time USDA has offered debt relief to agricultural borrowers through IRA funds. Under this round of payments, guaranteed FLP borrowers who are “distressed” will qualify for a direct financial assistance from FSA. Qualifying guaranteed FLP distressed borrowers should anticipate receiving a direct payment and a letter from FSA instructing borrowers to meet with their lender to apply the payment to their loan accounts.

Additionally, USDA is currently accepting and reviewing requests from direct loan distressed borrowers who have a delinquent loan or are unable to satisfy their next installment on a qualifying direct FLP loan. USDA encourages direct FLP borrowers to submit requests concerning cash flow-based assistance and extraordinary measures assistance in person at their county FSA office or by sending a request using the “Inflation Reduction Act Assistance for Distressed Borrowers” portal on USDA’s website here.

For information on IRA assistance for distressed borrowers, click here.

For USDA’s press release announcing assistance to guaranteed FLP borrowers, click here.

For a previous NALC article discussing IRA’s debt relief provisions, click here.