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Final Agency Determination: FAD-152
FAD-152
Subject: Request dated November 18, 2011, requesting a Final Agency Determination for the 2010 and three previous crop years regarding the interpretation of section 2(b) of the Common Crop Insurance Policy Basic Provisions (Basic Provisions), published at 7 C.F.R. 457.8. This request is pursuant to 7 C.F.R. part 400, subpart X.
Background:
Section 1 of the Basic Provisions states, in relevant part
1. Definitions.
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Person - An individual, partnership, association, corporation, estate, trust, or other legal entity, and wherever applicable, a State or a political subdivision or agency of a State. "Person" does not include the United States Government or any agency thereof.
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Substantial beneficial interest - An interest held by any person of at least 10 percent in you. The spouse of any individual applicant or individual insured will be considered to have a substantial beneficial interest in the applicant or insured unless the spouses can prove they are legally separated or otherwise legally separate under state law. Any child of an individual applicant or individual insured will not be considered to have a substantial beneficial interest in the applicant or insured unless the child has a separate legal interest in such person. For example, there are two partnerships that each have a 50 percent interest in you and each partnership is made up of two individuals, each with a 50 percent share in the partnership. In this case, each individual would be considered to have a 25 percent interest in you, and both the partnerships and the individuals would have a substantial beneficial interest in you (The spouses of the individuals would not be considered to have a substantial beneficial interest unless the spouse was one of the individuals that made up the partnership). However, if each partnership is made up of six individuals with equal interests, then each would only have an 8.33 percent interest in you and although the partnership would still have a substantial beneficial interest in you, the individuals would not for the purposes of reporting in section 2.
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Section 2(b) of the Basic Provisions states:
2. Life of Policy, Cancellation, and Termination.
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(b) Your application for insurance must contain your social security number (SSN) if you are an individual or employer identification number (EIN) if you are a person other than an individual, and all SSNs and EINs, as applicable, of all persons with a substantial beneficial interest in you, the coverage level, price election, crop, type, variety, or class, plan of insurance, and any other material information required on the application to insure the crop. If you or someone with a substantial beneficial interest is not legally required to have a SSN or EIN, you must request and receive an identification number for the purposes of this policy from us or the Internal Revenue Service (IRS) if such identification number is available from the IRS. If any of the information regarding persons with a substantial beneficial interest changes during the crop year, you must revise your application by the next sales closing date applicable under your policy to reflect the correct information.
(1) Applications that do not contain your SSN, EIN or identification number, or any of the other information required in section 2(b) are not acceptable and insurance will not be provided (Except if you fail to report the SSNs, EINs or identification numbers of persons with a substantial beneficial interest in you, the provisions in section 2(b)(2) will apply);
(2) If the application does not contain the SSNs, EINs or identification numbers of all persons with a substantial beneficial interest in you, you fail to revise your application in accordance with section 2(b), or the reported SSNs, EINs or identification numbers are incorrect and the incorrect SSN, EIN or identification number has not been corrected by the acreage reporting date, and:
(i) Such persons are eligible for insurance, the amount of coverage for all crops included on this application will be reduced proportionately by the percentage interest in you of such persons, you must repay the amount of indemnity, prevented planting payment or replanting payment that is proportionate to the interest of the persons whose SSN, EIN or identification number was unreported or incorrect for such crops, and your premium will be reduced commensurately; or
(ii) Such persons are not eligible for insurance, except as provided in section 2(b)(3), the policy is void and no indemnity, prevented planting payment or replanting payment will be owed for any crop included on this application, and you must repay any indemnity, prevented planting payment or replanting payment that may have been paid for such crops. If previously paid, the balance of any premium and any administrative fees will be returned to you, less twenty percent of the premium that would otherwise be due from you for such crops. If not previously paid, no premium or administrative fees will be due for such crops.
(3) The consequences described in section 2(b)(2)(ii) will not apply if you have included an ineligible person's SSN, EIN or identification number on your application and do not include the ineligible person's share on the acreage report.
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Interpretation Submitted
The requestor interprets section 2(b) of the Basic Provisions to require the application for crop insurance to include the employer identification number (EIN) of the corporation that is to be insured. In addition, the application must contain the social security number (SSN), or EIN of all persons with a substantial beneficial interest in the insured. If someone is not legally required to have a SSN or EIN, an identification number from the Internal Revenue Service or the insurer must be requested and received. If the application for crop insurance does not contain either the SSN, EIN or identification number of all persons with a substantial beneficial interest in the insured, and such persons are ineligible for insurance, the policy is void. As a result, the balance of any premium and administrative fees previously paid will be returned to the insured, minus twenty percent of the premium that would otherwise be due for such crops. In addition, no indemnity, prevented planting payment or replanting payment will be owed for any crop and the insured must repay any such payments that may have been paid for such crops.
Consequently, the requestor interprets that if a person with a substantial beneficial interest in the insured cannot provide an EIN or SSN and has not requested or received an identification number, the person is ineligible for crop insurance. Moreover, any crop insurance policy issued based on an application where the insured failed to disclose every entity or individual holding a substantial beneficial interest in the insured is void. For example, if the insured is a U.S. corporation wholly owned by another U.S. corporation, which in turn is wholly owned by a foreign company, the application must include the EIN for the insured, and the EIN for the two companies holding a substantial beneficial interest in the insured. If the foreign corporation is not legally required to have an EIN, it must request an identification number from the insurer. Failure to request the identification number and include it on the application voids the policy if the foreign corporation effectively owns 100% of the insured entitling the insured to 80% return of the premiums it paid. If the insured fails to revise the application by requesting and including an identification number for the foreign corporation, the insured is ineligible for insurance.
In addition, the requestor believes if the foreign corporation which effectively owns 100% of the insured is comprised of individual owners holding substantial beneficial interests of 10% or more in the foreign corporation, such individuals must be listed on the application and a SSN or identification number must also be provided in the application for these individuals as per Final Agency Determination (FAD) FAD-095.
Final Agency Determination
The Federal Crop Insurance Corporation (FCIC) agrees in part with the requestor's interpretation that section 2(b) of the Basic Provisions requires the application for crop insurance to include the employer identification number (EIN) of the corporation that is to be insured and the applicable identification number of any person who holds a substantial beneficial interest in the insured. The failure to provide an identification number for the insured or the person with a substantial beneficial interest in the insured, or request one if one is not available, may result in policy voidance if the person with the unreported identification is otherwise ineligible for insurance.
However, FCIC disagrees that the failure to provide or revise an application to include the identification number of the person who holds a substantial beneficial interest in the insured makes the insured ineligible and results in policy voidance. Section (2)(b)(2)(i) states that the failure to provide, request, or correct the identification number of a person with a substantial beneficial interest in the insured who is eligible for insurance shall result in the amount of coverage for all crops included on the application to be reduced proportionally by the percentage of interest held in the insured. Consequently, the reduction in the percentage of interest held by the substantial beneficial interest holder in the insured reduces the amount of coverage available to the insured, but does not make the insured ineligible to participate. Conversely, if the person with a substantial beneficial interest in the insured is not eligible for insurance, except as provided in 2(b)(3), the policy is void, including all crops listed on the application.
FCIC also disagrees with the requestor's interpretation that foreign individuals and corporations who do not have a valid SSN/EIN, or assigned number, are not eligible for crop insurance. FCIC provided guidance in Manager's Bulletin MGR-05-008. As stated therein, a person who is eligible to participate in the crop insurance program is entitled to apply for crop insurance. The Basic Provisions define person as an "individual, partnership, corporation, estate, trust, or other legal entity, and wherever applicable, a state or political subdivision or agency of the State…" Further, as stated in MGR-05-008, there is nothing in the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), 8 U.S.C. 1611, that excludes a foreign corporation from eligibility for crop insurance. However, FCIC agrees that MGR-05-008 and FAD-095 are applicable to all persons, whether foreign or domestic, in determining who must provide identification numbers and the consequences for failure to comply.
Finally, it is noted the requestor asked that the FAD provide that the decision is applicable to the 2010 and three previous crop years (2007 through 2010 crop years). 7 C.F.R. part 400, subpart X states requesters may seek interpretations of those provisions of the Act and the regulations promulgated thereunder that are in effect for the crop year in which the request is being made and the three previous crop years. To the extent the language in the provisions interpreted is identical to the language applicable for any other crop year; the same interpretation can be applied to such other crop year. It is the responsibility of the person seeking to use the published interpretation for a different crop year to ensure that the language of the provisions is identical. Even minor language changes can have an effect on the interpretation.
In accordance with 7 C.F.R. part 400.765(c), this Final Agency Determination is binding on all participants in the Federal crop insurance program for the 2008 through 2010 crop years. Any appeal of this decision must be in accordance with 7 C.F.R. part 400.768(g).
Date of Issue: February 16, 2012
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