USDA has made several announcements on different phases of debt relief from Section 22006 the Inflation Reduction Act, as well as some updates on tax implications for FSA borrowers who received debt relief payments in 2022 from Section 22006. Those announcements and resources are summarized below. You can also read FSA’s summary of 22006 debt relief payments here.
In this blog:
- Tax information for direct loan borrowers who received payments on FSA debt in 2022 from Section 22006
- A summary of all the kinds of eligibility for debt relief that have already been paid and which FSA intends to pay
- Our most recent information concerning the implementation of Section 22007, which concerns payments for farmers who have experienced discrimination at FSA.
To receive more breaking updates via text about the implementation of USDA debt and discrimination relief and how to access these programs, text the word “RELIEF” to our text line: 866.513.2803
Tax Information for Borrowers Who Received Debt Relief in 2022
A note on timing: These announcements came out right before tax time – it took several months for the changes below to be approved through multiple government agencies. Borrowers who filed their taxes before the April 18th deadline (not seeking an extension) without making this update may still want to read the resources below to see if filing an amended return would make financial sense for them.
Direct loan borrowers who received Section 22006 assistance in 2022 were mailed a set of revised tax documents along with a letter explaining the revised forms and notifying the borrower of options that may be available to avoid or alleviate any tax burden incurred as a result of receiving that financial assistance.
Earlier this year, borrowers who received financial assistance in 2022 from FSA under Section 22006 of the IRA received a Form 1099-G, Certain Government Payments, reporting that financial assistance. Direct loan borrowers who received that assistance in 2022 have now been mailed two envelopes containing the three documents below:
- A corrected Form 1099-G, subtracting the amount reported on the borrower’s Form 1099-C from the amount reported on the previous Form 1099-G.
- A Form 1099-C, Cancellation of Debt, reporting the portion of the borrower’s FSA payments made under Section 22006. Borrowers will receive one 1099-C for each FSA direct loan a borrower received a Section 22006 payment on (i.e. if a borrower received Section 22006 payments on three different FSA loans, they would receive three 1099-C forms).
- A letter explaining the revised forms, notifying the borrower of potential options to avoid or alleviate any tax burden incurred as a result of receiving Section 22006 assistance, and directing borrowers to available tax resources
Borrowers will receive two separate envelopes. One will include Form 1099-G; the other will include Form 1099-C along with the letter notifying the borrower of their options. The letter and corrected tax forms were mailed April 11 or 12.
Depending upon the borrower’s circumstances, the Section 22006 assistance reported on their new Form 1099-C may be excluded from their income. USDA cannot provide tax advice but wants borrowers to be aware of options that may help manage their tax liability.
With a tax filing deadline on April 18, 2023, borrowers are encouraged to consult a tax professional as soon as possible to discuss their options, including:
- Whether to seek an extension to file their income tax return,
- Whether they might meet the criteria for this cancellation of indebtedness to be excluded from income under section 108 of the Internal Revenue Code1, and
- Whether any other strategies are available for managing their tax liabilities.
There are a variety of resources available to help:
- An in-depth guide on the topic from Farmers Legal Action Group, which may be a helpful resource to share with your tax professional.
- An FSA webinar recording explaining the new and corrected tax documents and outlining next steps recipients of Section 22006 assistance can take.
- A more in-depth live webinar with FSA on April 19, 2023, from 2:00 p.m. to 3:30 p.m. EST, which will provide additional information on how to navigate tax preparation, manage potential tax burdens, and provide an opportunity to answer producer questions. Register here. The webinar will be recorded and made publicly available for those who cannot attend the live event.
- An FAQ page from FSA specific to this topic.
- A FSA webpage with resources on agricultural taxes, webinar recordings, and informational documents borrowers can share with a tax professional to help them navigate tax filing season.
Implemented Debt Relief – October 2022
- With funding through the Inflation Reduction Act (IRA) Section 22006, USDA has automatically applied $800 million to FSA direct and guaranteed borrowers who were classified as delinquent (60 days or more behind) to make their loans current AND cover the next annual payment for direct loan borrowers.
- Farmer borrowers who had their farms foreclosed on and still had remaining debt have had this debt resolved in order to end debt collections and offsets (a type of garnishment).
Upcoming Debt Relief – April 2023
To build on the initial October 2022 assistance, FSA intends to offer relief in April 2023 to more distressed farm loan borrowers. This will include approximately $123 million in automatic financial assistance for qualifying direct loan borrowers based on the specific circumstances of their direct loans. Qualifying borrowers will receive an individual letter detailing the assistance as payments are made. Eligibility for these new categories of automatic payments include:
- Assistance to direct loan borrowers who were past due on a qualifying direct loan as of September 30, 2022, but by fewer than 60 days, and remained delinquent on that loan as of March 27, 2023. The assistance will be equal to the amount of the delinquency and the next installment.
- Assistance to borrowers who restructured a qualifying direct loan on or after February 2020 through primary loan servicing available through FSA. The assistance will be equal to the next installment, not to exceed the remaining balance.
- Assistance to borrowers whose interest owed on their qualifying direct loan debt exceeds the principal owed (on a loan-by-loan basis). The assistance will equal the pending interest as of March 27, 2023.
All borrowers will also receive a letter detailing a new opportunity to receive assistance if they took extraordinary measures to avoid delinquency, such as taking on more debt, selling property or cashing out retirement accounts. The letter will provide the specific types of actions that may qualify for assistance and the process for applying for and providing the documentation to and seek that assistance. FSA has begun implementing a process that is focused on assisting borrowers unable to make their next scheduled installment. All borrowers should have recently received a letter detailing the process for seeking this type of assistance even before they become delinquent. Borrowers who are within two months of their next installment may seek a cashflow analysis from FSA using a recent balance sheet and operating plan to determine their eligibility.
Discrimination Payments Program: Under Construction
Under Section 22007 of the IRA, FSA loan borrowers may also be eligible for discrimination payments. USDA conducted a public comment period, now closed, on how this program should be structured to provide payments to farmers who have experienced discrimination through FSA’s lending process. Read RAFI-USA’s comment here.
March 1, 2023, USDA announced it opened solicitations for one National Administrator and four Regional Hubs that will develop the discrimination payment program structure. USDA will make final selections in late Spring with the hopes of opening applications for farmers by the end of 2023.
Wondering if you’ve received debt relief already?
Want to apply for upcoming debt or discrimination relief?
Here’s what you can do next:
- Sign up for text updates from RAFI-USA regarding USDA debt and discrimination relief. To do so, text the word “RELIEF” to our text line: 866.513.2803
- If you have an FSA direct or guaranteed loan, call your local FSA office or guaranteed lender and ask for the current status of your loan.
- If you need further assistance with your case, call the RAFI-USA Farmer Hotline at 866.586.6746, Monday-Friday, 9:00 a.m.-6:00 p.m.
Inflation Reduction Act Section 22006 – USDA Fact Sheet March 2023
- Fact Sheet regarding second phase of additional automatic payments for distressed borrowers
Inflation Reduction Act Section 22006 – USDA Fact Sheet October 2022
- A full summary of USDA’s first phase of assistance for distressed borrowers
Inflation Reduction Act Section 22007 – March 1 announcement
- Press release regarding upcoming discrimination relief
USDA Press Release – Oct 18 announcement
- Press release regarding loan payments made and upcoming debt relief
USDA’s Request for Feedback – Comments Submitted
- Read public comments on how Section 22007 funds should be used to provide payments to borrowers who experienced discrimination in the FSA lending process. (Comment period now closed.)
1On December 9, 2022, Senator Booker introduced a bill to make all IRA debt relief and discrimination payments non-taxable, but it was not incorporated into the year-end budget bill. To ask your legislators to support this bill click here. Currently, whether a payment is taxable will depend on the type of payment and the farmer’s individual financial situation.