§ 1400.204 Limited partnerships, limited liability partnerships, limited liability companies, corporations, and other similar legal entities.

(a) For program year 2025 and prior years, a limited partnership, limited liability partnership, limited liability company, corporation, or other similar legal entity; or for program year 2026 and subsequent years, a C corporation, limited liability company that affirmatively elects to be treated as a corporation for federal income tax purposes, or other similar legal entity will be considered to be actively engaged in farming with respect to a farming operation if: (1) The legal entity independently and separately makes a significant contribution to the farming operation of capital, equipment, or land, or a combination of capital, equipment, or land; (2) Each partner, stockholder, or member with an ownership interest or their spouse with an ownership interest makes a contribution, whether compensated or not compensated, of active personal labor, active personal management, or a combination of active personal labor and active personal management to the farming operation; that are: (i) Performed on a regular basis; (ii) Identifiable and documentable; and (iii) Separate and distinct from the contributions of any other partner, stockholder or member of the farming operation; (3) The collective contribution of the partners, stockholders and members is significant and commensurate; (4) The legal entity has a share of the profits or losses from the farming operation commensurate with the legal entity's contributions to the operation; and (5) The legal entity makes contributions to the farming operation that are at risk for a loss, with the level of risk being commensurate with the legal entity's claimed share of the farming operation. (b) If any partner, stockholder, or member fails to meet the requirements in paragraph (a)(2) of this section, any program payment and benefit subject to this subpart provided to the legal entity will be reduced by an amount commensurate with the ownership share held by that partner, stockholder, or member in the legal entity. (c) An exception to paragraph (b) of this section will apply if: (1) At least 50 percent of the stock is held by partners, stockholders, or members that are actively providing labor or management and (2) The partners, stockholders, or members are collectively receiving, directly or indirectly, total payments equal to or less than one payment limitation. (d) For a farming operation conducted by a legal entity in which the capital, land, or equipment is contributed by the legal entity, the capital, land, or equipment: (1) To meet the requirements of paragraph (a)(1) of this section, must be contributed directly by the legal entity and must not be acquired as a loan made to, guaranteed, co-signed, or secured by any person, legal entity, or qualified pass-through entity that has an interest in the farming operation, as defined in this part; and (2) To meet the requirements of paragraphs (a)(4) and (a)(5) of this section, and if acquired as a result of a loan made to, guaranteed, co-signed, or secured by the persons, legal entities, or qualified pass-through entities as defined, the loan must: (i) Bear the prevailing interest rate and (ii) Have a repayment schedule considered reasonable and customary for the area.