[Code of Federal Regulations]
[Title 7, Volume 7]
[Revised as of January 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR795.14]

[Page 501]
 
                          TITLE 7--AGRICULTURE
 
                            CHAPTER VII--FARM
                SERVICE AGENCY, DEPARTMENT OF AGRICULTURE
 
PART 795--PAYMENT LIMITATION--Table of Contents
 
Sec. 795.14  Changes in farming operations.

    (a) Subject to the provisions of this part, a person may exercise 
his or her right heretofore existing under law, to divide, sell, 
transfer, rent, or lease his or her property if such division, sale, 
transfer, rental arrangement, or lease is legally binding as between the 
parties thereto. However, any document representing a division, sale, 
transfer, rental arrangement, or lease which is fictitious or not 
legally binding as between the parties thereto shall be considered to be 
for the purpose of evading the payment limitation and shall be 
disregarded for the purpose of applying the payment limitation. Any 
change in farming operations that would otherwise serve to increase the 
number of persons for application of the payment limitation must be bona 
fide and substantive.
    (b) A substantive change includes, for example, a substantial 
increase or decrease in the size of the farm by purchase, sale, or 
lease; a substantial increase or decrease in the size of allotment by 
purchase, sale, or lease; a change from a cash lease to a share lease or 
vice versa; and dissolution of an entity such as a corporation or 
partnership.
    (c) Examples of the types of changes that would not be considered as 
substantive are the following:
    Example 1. A corporation is owned equally by four shareholders. The 
corporation owns land, buildings, and equipment and in the prior year 
carried out substantial farming operations. Three of the shareholders 
propose forming a partnership which they would own equally. The 
partnership would cash lease land and equipment from the corporation 
with the objective of having the three partners considered as separate 
persons for purposes of applying the payment limitation under the 
provisions of Sec. 795.7 of the regulations.
    The formation of such a partnership and the leasing of land from a 
corporation in which they hold a major interest would not constitute a 
substantive and bona fide change in operations. Therefore, the 
corporation and the partners would be limited to a single payment 
limitation.
    Example 2. Three individuals each have individual farming operations 
which, if continued unchanged, would permit them to have a total of 
three payment limitations.
    The three individuals propose forming a corporation which they would 
own equally. The corporation would then cash lease a portion of the 
farmland owned and previously operated by the individuals with the 
objective of having the corporation considered as a separate person for 
purposes of applying the payment limitation under the provisions of 
Sec. 795.8 of the regulations. The formation of such a corporation and 
the leasing of land from the stockholders would not constitute a 
substantive and bona fide change in operations. Therefore, the 
corporation and the three individuals would be limited to three payment 
limitations.