Understanding CCC Loans for Ag Lenders 1 Understanding CCC Loans for Ag Lenders-prepared for Total Training Solutions Dr. Paul Gorman Elcel Solutions, Inc. [email protected]Mobile 507-420-0138 1 Dr. Paul Gorman, Jan2016, [email protected]Phone 507-420-0138 2 Presentation Topics What is a CCC Loan Why Farm Producers Take CCC Loans CCC Loans as Loans (LAL) vs. CCC Loans as Income (LAI). Accounting & Reporting CCC Transactions Effects of LAL vs. LAI on Balance Sheets, Income Statements, and Sch. F Tax FSA/CCC Loan Forms Lending Policies, Understandings, or Covenants for Customers with CCC Loans Dr. Paul Gorman, Jan2016, [email protected]Phone 507-420-0138
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Understanding CCC Loans for Ag Lenders
1
Understanding CCC Loans for Ag Lenders-prepared for Total Training Solutions
The Commodity Credit Corporation(CCC) is a Government-owned andoperated entity that was created tostabilize, support, and protect farmincome and prices.
CCC has no operating personnel.Its price support, storage, andreserve programs, and its domesticacquisition and disposal activitiesare carried out primarily through thepersonnel and facilities of the FarmService Agency (FSA).
Farmers may receivebasic nonrecourse commodity loanson most of these commodities at adesignated rate per unit (loan rate)by pledging and storing a quantity ofa commodity as collateral.
Nonrecourse loans are defined as loans for which producers have the option of either repaying the principal and interest or forfeiting (delivering) the collateral (thecommodity) to CCC in full settlement of the loan.
Settlement of the loan is then based on the loan rate and the associated quantity and quality of the commodity involved.
Collateral Acquisition: If a producerdoes not redeem the commodity byloan repayment time, CCC takestitle and possession of the commodity that was pledged as collateral for the nonrecourse marketing assistance loan.
Why Farm Producers Take CCC Loans Low interest rates-currently 1.125% Provide temporary operating funds
(up to 9 months) while crop is held in storage for better commodity prices or until forward contract delivery.
Bring farm Schedule F tax profit to a positive number in lower income years so deductions, exemptions, or Sec 179 can be utilized & not wasted.
Why Farm Producers Take CCC Loans Past IRS-Farm tax filer who “elected” to
treat CCC loans as income could not change to loans as loans unless Form 3115-Change in accounting practice was filed and had IRS approval
Current IRS-Farm tax filer may move from LAL to LAI from year to year by filing an IRC 77 election or from LAI to LAL by Filing 3115 with automatic approval
Charles Tumorg-narrative Charles & Fran Tumorg farm near
Promise, Minnesota. They own 460 acres of which 360 are tillable. They rent 1140 acres from four different landlords in the neighborhood. The home farm (80 acres with buildings) was purchased on a contract for deed from Mary Tumorg after the settling of his father’s estate.
Lending Policies, Covenants, or Understandings with CCC Customers
1. CCC Loan proceeds in their entirety must be deposited in the lender customer farm business checking account and applied to current operating loans or other loans secured by the underlying physical crop commodity.
2. CCC Loan proceeds may be used for current farm expenses or owner living draws with lender approval after meeting lender’s requirements/understandings in #1 above.