Pass-through Entities and General Partnerships Now Subject to Same Rules

 

New rules around limitations on federal payments to certain farm business entities were written into the “One Big Beautiful Bill” Act (OBBB), enacted in July 2025. But, like many farm-related provisions of the OBBB, the details about how the new limitations will be applied are still being worked out in Washington.

Since the devil is in the proverbial details, farmers are best advised to hold tight and make no changes in their business entity structures until the OBBB’s fine print is dry.

Background

Historically, pass-through farm entities such as S corporations and limited liability companies (LLCs) have been limited in the amount of federal payments they could receive. The limitation disqualifies entities with annual income over $900,000, based on an average of the previous three years.

While $900,000 in annual income sounds like a lot, many entities include multiple owners. If you divide $900,000 by eight owners, for example, each owner’s income is $112,500. That’s a fairly modest level at which to lose federal farm support payments.

The exception to this limitation is general partnerships, which are not subject to any federal farm payment limitations based on income. As a result, many farm owners have utilized a workaround legal arrangement, where the farm would operate as a partnership, but the individual partners would organize single-member LLCs or S corporations and assign their interest to their LLC or corporation, meaning the LLC or the S corporation became the partner, operating within the general partnership. This had the effect of operating as a general partnership — hence, avoiding the federal payment limitation — while preserving the liability protection of an LLC or S corporation.

What Has Changed?

The good news is that the OBBB now treats LLCs, S corporations and general partnerships all the same in terms of federal payment limitations. Farms no longer need to use legal workarounds. They can operate as a general partnership, an S corporation or an LLC.

As a result, a farm can benefit from each individual partner or shareholder having their own payment limitation, multiplied by the number of partners or shareholders involved in ownership.

This change in the payment limitations for ownership entities may particularly benefit multi-generation family farms, where many second- or third-generation family members want to remain active owners.

Details Yet to be Hammered Out

While this is good news, it’s not finished news. So farm owners who are tempted to change their entity structures right away need to sit tight.

The OBBB does not make clear whether the $900,000 income limit will change in any way. With S corporations and LLCs now enjoying the same exemption from the $900,000 income limitation that general partnerships have always received, the potential economic impact on federal farm support programs could be significant. Going in the opposite direction, applying the $900,000 income limit to general partnerships in order to equalize all entity types, would potentially cost thousands of farm entities support payments they have been receiving for many years.

If that happened, many farm entities could fail financially. The USDA and the White House are looking at how to structure payment limitations to ensure fairness and sustainability. But until the regulations are written and put in place, farm owners are advised to stick with their current ownership entity structures.

We will keep you informed as new information becomes available. If you would like to discuss your farm’s business entity structure, contact an Adams Brown agriculture advisor.