There has been a significant change in the laws governing how farms are owned and organized. The “how” and “why” are somewhat involved, so bear with us as we explain why reorganizing those properties and operations should be considered.
There are a variety of issues that must be considered in connection with the ownership and operation of agricultural real estate. Certain states impose limitations on the ownership of agricultural real estate. For example, South Dakota has adopted policies against the ownership of agricultural land by corporations or LLCs, irrespective of whether domestic or foreign,[1] and states such as Iowa have adopted integrated statutes as to “family farms.” [2] Other states have adopted laws that preclude ownership of real estate, agricultural or otherwise, by business organizations that include a “foreign adversary.” [3] At the federal level, acquisitions and transfers of interests in “agricultural land” [4] by a “foreign person” [5] trigger certain reporting obligations, [6] with civil penalties for failure to do so. [7]
Practically speaking, it has been common to hold and operate agricultural real estate in partnership consequent to how certain farm support programs, namely the Price Loss Coverage and the Agricultural Risk Coverage, each created by the Agricultural Act of 2014 (also known as the “2014 Farm Bill”) have determined who can receive payments. [8] Until recently, each has provided for certain payments to each person “actively engaged in farming”; where a partnership was used separate payments (now up to $155,000 per annum) could be made to each partner. However, where a farm was operated through a business entity such as a corporation or an LLC there was no “look through” to the natural persons, and the entity would be treated as the single farmer. [9] This treatment had the effect of dissuading the operation of certain farming operations through business organizations that afford limited liability and on particular facts other benefits.
This treatment changed under the One Big Beautiful Bill Act (“OBBBA”), [10] which at section 10306 created a new category of entity, a “qualified pass-through entity,” namely:
(A) a partnership;
(B) an S corporation;
(C) a limited liability company that does not affirmatively elect to be treated as a corporation; and
(D) a joint venture or general partnership. [11]
It was then provided that:
Payments made to a qualified pass-through entity shall not exceed, for each payment specified in subsections (b) and (c), the amount determined by multiplying the maximum payment amount specified in subsections (b) and (c) by the number of persons and legal entities (other than qualified pass-through entities) that comprise the ownership of the qualified pass-through entity. [12]
This provides a look-through of the qualified pass-through entity to those persons who are themselves “actively engaged in farming,” [13] equivalent to what had previously been reserved to partnerships and joint ventures. [14]
Regulations as to this change in the law were issued on June 2, 2026. [15] Therein it is provided:
Section 10306 of OBBBA amended Section 1001 of the Food Security Act of 1985 to provide equitable treatment of certain entities under the provisions for payment limitations. Payment limitations are the maximum amount that a person or legal entity can receive for any crop year, directly or indirectly, under certain CCC, FSA, and NRCS programs, and payments to legal entities are tracked (“attributed”) through four levels of ownership. Attribution of payments through four levels of ownership of legal entities is applied. When a legal entity is a payment applicant, then the entity itself (the “payment entity”) is attributed the full payment amount and all owners in the first three member levels are attributed an amount equal to their indirect ownership share in the payment entity. In this way, payments are limited to eligible participants comprising the payment entity and owners through the fourth level of ownership. Owners at the member level may be persons or other legal entities, including qualified pass-through entities.
It would appear, although it is less than clear, that an LLC electing to be treated as an S-corporation by filing a Form 2553 (Election by a Small Business Corporation), which has the effect of electing into corporate classification even absent a Form 8832 (Entity Classification Election) is not a “Qualified Pass-Through Entity” as contemplated by these rules.
This change in the law represents a significant loosening of the effective limitations on owning and operating agricultural real estate as a limited partnership, an S-corporation, or as an LLC. For example, a farm may now be operated as a corporation or an LLC, thereby yielding the benefits of limited liability. Furthermore, in some circumstances, what was once a complex planning framework can evolve into a more streamlined model, lowering administrative costs and allowing farm operators and their advisors to focus less on entity-level compliance and more on core business activities.
As a result of this change in the law, there may be estate planning opportunities available for LLC or corporate owned farming operations that may have not previously been available. Every situation is different, and the business and tax laws at issue will need be considered before any reorganization is accomplished. The attorneys at Stoll Keenon Ogden can assist you in doing so and as well create the new entities, be they LLCs, S-corporations or otherwise, that may be needed.
[1] See S.D. Cod. L §47-9A-1.
[2] See Iowa Code §§9H.1 through 9H.5A.
[3] See, e.g., Ariz. §33-443; Ky. Rev. Stat. Ann. §247.018; Mont. Code §35-30-103; Va. Code §55.1-508.
[4] Defined at 7 U.S.C. §3508(1).
[5] Defined at 7 U.S.C. §3508(3).
[6] See 7 U.S.C. §3501. See also 7 C.F.R. §781.
[7] See 7 U.S.C. §3502.
[8] Pub. Law 113-79, 128 Stat. 649.
[9] Pub. Law 119-21.
[10] 7 U.S.C. §1308(a)(5), created by OBBBA §10306(a)(1).
[11] 7 U.S.C. §1308(e)(3)(B)(ii), created by OBBBA §10306.
[12] See 7 C.F.R. §1400.201. See also U.S. Dept. of Agriculture, Farm Services Agency, Actively Engaged in Farming (last visited April 9, 2026).
[13] See also OBBRA § 10306(b)(2) (“by striking ‘a joint venture or a general partnership” and inserting “a qualified pass-through entity.’”). [14] See 91 F.R. 3288001, Payment Limitation and Payment Eligibility.
