There has been a significant change in the laws governing how farms may be owned and operated. The “how” and “why” are somewhat involved, so bear with us as we explain why reorganizing those properties and operations into limited liability companies (“LLCs”), limited partnerships, or S corporations should now be considered.
Agricultural Real Estate Ownership Issues
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 who are themselves actively engaged in farming, and the entity would be treated as a 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.
Changes Under the One Big Beautiful Bill Act
This treatment changed under the One Big Beautiful Bill Act (“OBBBA”), 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.[10]
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.[11]
This provides a look-through of the qualified pass-through entity to those persons who are themselves “actively engaged in farming,”[12] equivalent to what had previously been reserved for partnerships and joint ventures.[13]
Regulations as to this change in the law were issued on June 2, 2026.[14] 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.[15]
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),[16] which has the effect of electing into corporate classification even absent a Form 8832 (Entity Classification Election),[17] is not a qualified pass-through entity as contemplated by these rules. The qualified pass-through entity rules encompass “a limited liability company that does not affirmatively elect to be treated as a corporation,” and an LLC filing a Form 2553 does elect into treatment as a corporation. Yes, it is true that the intention is to be treated as a corporation under Subchapter S of the Internal Revenue Code, but Subchapter S is not “a corporation taxed as a partnership”; rather an S corporation is a tax corporation subject to the particular rules of Subchapter S, and, “[e]xcept as otherwise provided in this title, and except to the extent inconsistent with this subchapter, subchapter C shall apply to an S corporation and its shareholders.”[18] Ergo, it would appear that the inclusion of S corporations within the “qualified pass-through entity” category is limited to those organizations ab initio classified as corporations[19] that then elect into Subchapter S.
The Planning Opportunity
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 an LLC. For example, a farm may now be operated as a corporation or an LLC, thereby yielding the benefits of limited liability. Prior issues with respect to partition of property owned in joint tenancy or in partnership may not exist if held by a corporation, LLC, or limited partnership. 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 advisers 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 undertaken.
See S.D. Codified Laws § 47-9A-1. ↑
See Iowa Code §§ 9H.1–9H.5A. ↑
See, e.g., Ariz. Rev. Stat. § 33-443; Ky. Rev. Stat. Ann. § 247.018; Mont. Code § 35-30-103; Va. Code § 55.1-508. ↑
Defined at 7 U.S.C. § 3508(1). ↑
Defined at 7 U.S.C. § 3508(3). ↑
See 7 U.S.C. § 3501; see also 7 C.F.R. § 781. ↑
See 7 U.S.C. § 3502. See generally Federal and State Bills Restricting Property Ownership by Foreign Entities, Committee of 100 (last visited July 9, 2026); Foreign Ownership of Agricultural Land: FAQs & Resource Library, Nat’l Agric. L. Ctr. (last visited July 9, 2026); April J. Anderson, Jason J. Hawkins & Steve P. Mulligan, Cong. Rsch. Serv., LSB11013, State Regulation of Foreign Ownership of U.S. Land: January 2023 to July 2024 (updated Aug. 28, 2024); Margy Eckelkamp, Foreign-Owned Farmland Faces Growing Scrutiny from States and USDA, AgWeb (July 17, 2026). ↑
Pub. L. No. 113-79, 128 Stat. 649; see also Agriculture Risk Coverage (ARC) & Price Loss Coverage (PLC), USDA Farm Serv. Agency (last visited July 9, 2026); Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) 2025, USDA Farm Serv. Agency (last visited July 9, 2026); How PLC Works, HarvestFile (last visited July 9, 2026); The Ultimate Guide to Agriculture Risk Coverage (ARC), U.S. L. Explained (last visited July 9, 2026). ↑
Pub. L. No. 119-21. ↑
7 U.S.C. § 1308(a)(5) (created by OBBBA § 10306). ↑
7 U.S.C. § 1308(e)(3)(b)(ii). ↑
See 7 C.F.R. § 1400.201; see also Actively Engaged in Farming, USDA Farm Serv. Agency (last visited July 9, 2026); Payment Eligibility, USDA Farm Serv. Agency (last visited July 9, 2026). ↑
See also OBBBA § 10306(b)(2) (“by striking ‘a joint venture or a general partnership’ and inserting ‘a qualified pass-through entity’”). ↑
See Payment Limitation and Payment Eligibility, 91 Fed. Reg. 328800. ↑
Id.; see also Press Release, USDA Farm Serv. Agency, USDA Expands Payment Limitation and Payment Eligibility Provisions for Farmers (June 3, 2026):
Starting with the 2026 crop year, for payment eligibility purposes, FSA will treat applicable limited liability companies (LLCs) and S-Corporations (S-Corps), and other similar entities, as “pass through entities.” Each member of the qualified pass-through entity who meets actively engaged in farming criteria will help qualify the entity for expanded payments.
Previously, farm operations that were structured as an LLC or an S-Corp were limited to a single payment limitation, which varies by program. Now, partnerships, S-Corps, qualifying LLCs, and joint ventures or general partnerships will be treated the same.
For program year 2026 only, farm operations that are structured as LLCs or S-Corps or one of the new qualified pass-through entities must file updated farm operating plans with FSA for program year 2026 by Sept. 15, 2026. After program year 2026, FSA will continue to use June 1 as the date for determining ownership interest in an entity. Producers who have crop insurance or Noninsured Crop Disaster Assistance Program coverage should contact their crop insurance agent or local FSA office before restructuring their farm operation to ensure appropriate timing for restructuring without impacting current insurance coverage.
Members of qualified pass-through entities must provide contributions and be engaged in farming for the entity to be considered actively engaged in farming.
An additional change allows members of all entity types to receive compensation for labor and management contributions and use the same contribution to qualify as “actively engaged in farming.” This update provides consistent treatment of member contributions across all entity types. ↑
See About Form 2553, Election by a Small Business Corporation, Internal Revenue Serv. (last visited July 9, 2026). ↑
Internal Revenue Serv., Form 8832; see also About Form 8832: Entity Classification Election, Internal Revenue Serv. (last visited July 9, 2026); Larry R. Ribstein, Robert R. Keatinge & Thomas E. Rutledge, Ribstein and Keatinge on Limited Liability Companies § 19:16 (June 2026). ↑
26 U.S.C. § 1371(a); Ribstein et al., supra note 17. ↑
See 31 C.F.R. § 301.7701-2(b). ↑
