Final Agency Determination: FAD-204

Subject: Two requests dated November 21, 2013, and December 5, 2013, to the Risk Management Agency (RMA) requesting a Final Agency Determination for the 2010 regarding the interpretation of section 2(b)(1) of the Common Crop Insurance Basic Provisions (Basic Provisions), published at 7 C.F.R. 457.8. This request is pursuant to 7 C.F.R. § 400, subpart X.

Background:

The preamble to the Basic Provisions states, in relevant part:

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Throughout this policy, “you” and “your” refer to the named insured shown on the accepted application and “we,” “us,” and “our” refer to the insurance company providing insurance.

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Section 1 of the Basic Provisions states, in relevant part:

1. Definitions.

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Application - The form required to be completed by you and accepted by us before insurance coverage will commence…

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Insured - The named person as shown on the application accepted by us. This term does not extend to any other person having a share or interest in the crop (for example, a partnership, landlord, or any other person) unless specifically indicated on the accepted application.

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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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Section 2(b)(1) of the Basic Provisions states, in relevant part:

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

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The requestor stated that identical or nearly identical language is set forth in the Crop Revenue Coverage (CRC) and the Revenue Assurance (RA) insurance policies. Accordingly, they request this Final Agency Determination explicitly be made applicable to the CRC and RA policies as well.

Two interpretations were submitted in this FAD request.

First requestor’s interpretation:

The issue for which an official policy interpretation is requested concerns the Employer Identification Number (EIN) that must be reported by an insured entity on its application. This request specifically relates to situations in which the insured entity is wholly owned by another eligible entity and all individuals with a significant beneficial interest are reported on the application. In particular, the first requestor asks if it is permissible for an insured eligible entity to use its ultimate parent company’s EIN on its application. It is the first requestor’s interpretation of the relevant policy and procedure that it is not.

The insured entity must use its own EIN on its application. If an insured entity uses the EIN of its ultimate parent company on the application, the first requestor believes that section 2(b)(1) dictates that “insurance will not be provided” under the policy.

Section 2(b) of the Basic Provisions requires the insured applicant to use “your” EIN. “Your” is defined by FCIC as the “named insured shown on the accepted application.” In this case, the named insured must use its own EIN on it application.

Second requestor’s interpretation:

The issue for which an official policy interpretation is requested concerns the Employer Identification Number (EIN) that must be reported by an insured entity on its application. This request specifically relates to situations in which the insured entity is wholly owned by another eligible entity and all individuals with a significant beneficial interest are reported on the application. In particular, the second requestor asks if it is permissible for an insured eligible entity to use its ultimate parent company’s EIN on its application. It is the second requestor’s interpretation of the relevant policy and procedure that it is permissible.

The insured entity is not obligated to use its own EIN on its application. The ultimate parent company owns the named insured, and the named insured is a disregarded entity for tax purposes. Furthermore, all individuals with a significant beneficial interest in both entities were reported on the application. Therefore, the second requestor believes an insured entity that uses the EIN of its ultimate parent company on the application should be provided insurance under the policy.

It is the second requestor’s interpretation of the above-referenced policy provisions that the named insured is allowed to use its parents EIN on the named insured’s Federal crop insurance application.

FCIC agrees with the first requestor that the identification number provided on an application must be the identification number established for the person named on the policy. Therefore, if the named insured has established an employer identification number (EIN) for the entity, then the insured entity must use its own EIN on its application. Section 2(b)(1) of the Basic Provisions provides that “insurance will not be provided” under the policy if an identification number is provided that does not belong to the applicant.

FCIC disagrees with the second requestor that there is exception for the usage of the parent corporation’s EIN by its subsidiary when the subsidiary is disregarded. First, the rules of the Federal crop insurance program are separate and distinct from the rules of the Internal Revenue Service related to taxes. To participate in the Federal crop insurance program, the insured is required to comply with the requirements of section 2 of the Basic Provisions. Throughout, section 2 references “you” and “your” as it relates to the providing of EINs. The preamble to the Basic Provisions is clear that “you” and “your” refers to the named insured. Therefore, the EIN of the named insured and the identification numbers of the persons with a substantial beneficial interest in the named insured must be included for insurance to be provided. Further, allowing an insured entity that actually has the insurable interest in the crop to use the EIN of a parent corporation that may not actually have a share in the crop could circumvent ineligibility determinations. Therefore, a subsidiary corporation must provide its assigned EIN for crop insurance purposes.

Even though 7 C.F.R. part 400, subpart X is only applicable to provisions of the Federal Crop Insurance Act and the regulations promulgated hereunder, and the CRC and RA policies are not codified in the Code of Federal Regulations, to the extent those provisions are identical or nearly identical, this Final Agency Determination applies accordingly to assure consistent, uniform, and equitable treatment to all policyholders insured under the same policy provisions.

In accordance with 7 C.F.R. § 400.765(c), this Final Agency Determination is binding on all participants in the Federal crop insurance program for the crop years the policy provisions are in effect. Any appeal of this decision must be in accordance with 7 C.F.R. § 400.768(g).

Date of Issue: January 16, 2014