An unorthodox arrangement
Posted on Sunday, June 18, 2006
WASHINGTON - U. S. Rep. Marion Berry has received more than $ 800, 000 in federal farm subsidies since 1994 using a corporate structure that some experts say might not have withstood close scrutiny by agriculture and tax officials.
A U. S. Department of Agriculture official says a corporate-farming agreement similar to Berry's would raise questions with his agency if detected but that it probably wouldn't be detected under standard procedures for reviewing corporate farms.
Berry, a Democrat who represents Arkansas' 1 st Congressional District, says his own "knowledgeable and competent experts,"including his son and his brother, both attorneys, have looked at his arrangements and assured him there is nothing questionable.
"I am absolutely confident that me and my family have followed the law,"Berry said during an interview in the Rayburn House Office Building.
At issue is whether 1994 stock transfers within a corporation known as Marion Berry Inc., which farmed in Arkansas County and was the congressman's main family farming operation, were true transfers of ownership or paper transactions for appearance's sake.
If such a structure were found improper, subsidy recipients could face repayment with interest for the years in which the arrangement was in place. They also could be made ineligible for subsidies for at least one additional year, Agriculture Department officials say. Extreme cases are prosecuted by the Justice Department and can result in additional financial penalties and even jail time. There is no statute of limitations.
By giving 25 percent of the business to his son, Mitchell, and 25 percent to then-friend and employee Danny Sloate of Gillett, Berry reduced his interest in the corporation to 50 percent. He also relinquished nominal control of the farm, naming Sloate president and putting him in charge of day-today management.
Berry said he did it to satisfy White House lawyers after he moved to Washington in late 1993 to be President Clinton's liaison to the Department of Agriculture. They didn't want him owning more than 50 percent of an agricultural enterprise while advising Clinton on farm policy, he said.
But Berry's change of address also had implications for the relationship between his farming corporation and the Farm Service Agency, the part of the Department of Agriculture that controls subsidies.
Experts on farm subsidies say the way Berry divided ownership kept his corporation eligible for payments even though he would no longer be living nearby.
From 1995 to 2004, the corporation known as Marion Berry Inc. received $ 801, 661 in federal farm subsidies, according to the database of the Environmental Working Group, a research and lobbying organization that has long contended subsidies go disproportionately to "mega-farms."
Marion Berry Inc. primarily raised soybeans, wheat and rice.
Last year, even after the family largely shut down Marion Berry Inc. and shifted to tenant farming, it received another $ 11, 142, according to information the Agriculture Department provided through a Freedom of Information Act request.
To receive subsidies, corporations must be "actively engaged"in farming, having at least 50 percent of their ownership supplying "active personal management"or "active personal labor"or a combination of the two. The terms come from Title VII of the Code of Federal Regulations.
Sometimes, farm owners attempt to meet the rule by managing remotely, sending instructions back home about what crops to plant or when to fertilize. If they do that, farming regulations also allow them to hire workers to satisfy the "active personal labor"requirement.
CONFLICTING STATEMENTS
Berry, in one of several interviews, said he had become too busy in Washington to manage the corporation remotely. "He [Sloate ] was running the company. I wasn't around,"he said.
He also said as much on the financial-disclosure statement he filed when he first ran for Congress in 1996. The disclosure statement summarized the history of his involvement with various family farming operations.
"On May 10, 1994, I resigned as an officer and director [of Marion Berry Inc. ] and I am no longer involved in management or operations,"it reads.
If Berry was in Washington and could no longer manage, experts said, bringing Sloate and Mitchell Berry into the corporation was necessary to have at least 50 percent of the ownership providing "active personal labor"and "active personal management" - the two halves of the "actively engaged"rule. They would supervise the farming of close to 2, 100 acres in Arkansas County, land leased from other Berry family corporations.
However, in recent interviews, family members have gone back and forth on whether changing the ownership structure in 1994 was necessary to keep federal payments flowing. At first, they denied it.
But Russell Berry, the congressman's brother, said in a follow-up interview last month that bringing Sloate and Mitchell Berry into the corporation was necessary to continue to meet the "actively engaged"rule.
The tone changed yet again earlier this month when Marion Berry, during the interview in his congressional office, said Sloate and his son were made owners for other reasons.
"I wanted those two young men to become more involved and participatory in the farming operation with the hope and expectation that they would grow something really good [and ] become prosperous,"he said.
Despite being in Washington from late 1993 onward, Berry said he provided enough management on his own for the corporation to be "actively engaged."
He did so, he said, by coming home as often as he could to inspect crops. If he saw something that needed to be done, he would tell Sloate or other employees.
Federal regulations say "supervision of activities necessary in farming operation,"including land preparation and planting, is a way to provide "active personal management."The regulations don't specify how often the supervision has to be performed.
"To be safe, there should be greater involvement on his part in providing services that are reasonably related and necessary to the farming operation,"said Roger McEowen, agricultural economist and subsidy expert at Iowa State University, but he added "there is no bright-line test."Berry couldn't say whether he was listed as providing management services in the operating plans that farming corporations periodically file with the Farm Service Agency. He said Sloate took care of those. NOT DAY-TO-DAY MANAGEMENT
Some farm law experts say the Agriculture Department looks harder at farm owners who try to manage their operations longdistance and especially did so in the early 1990 s. "I think it's a much harder case,"Mike Barton, an agricultural-law attorney in Springfield, Ill., said of proving long-distance supervision.
Many advocacy groups, however, say the department makes remote management too easy, destroying the notion that farmers ought to be people who dirty their hands daily.
As for other management duties, Marion Berry said: "I was not involved in the day-to-day management of the company. I didn't hire people. I didn't fire people. I didn't make financial decisions."
So was his brother Russell wrong about Sloate and Mitchell Berry needing to be involved ?
"I can't be held responsible for what other people say or do,"Marion Berry said.
And does the congressman stick by what he said in his financial-disclosure statement about having resigned from management and operations of the farming corporation in 1994 ?
Berry said," I still could be as involved as I wanted to be with the production of the crop."
No matter who was managing what, nearly two dozen experts in the fields of tax, agricultural and corporate law interviewed over the past four months by the Democrat-Gazette said a stockbuyback provision in the divestiture arrangement likely would have raised red flags if noticed by federal officials. That provision allowed Berry to repurchase his son's 25 percent or Sloate's 25 percent at any time for just $ 5, 000. No reason had to be given.
Berry and his brother said the buyback provision was designed to "protect the family"and make it possible for the congressman to return to farming if he decided to leave Washington. But experts questioned whether a stock transfer with such a buyback clause was a true transfer of ownership. Russell Berry said there was a transfer of control, because stock certificates accompanied the agreement. One of the nation's foremost experts on agricultural subsidies, professor emeritus Neil Harl of Iowa State University, said stock certificates by themselves signify little. It's the circumstances behind them that count, he said. "The buyback [provision ] weakens the stock certificates,"he said.
FAIR-MARKET VALUE ? Numerous other experts questioned about B erry's situation told the Democrat-Gazette they also would question whether he really transferred ownership.
"If the question is: Did he give up control ? I think the answer is, he did not. It's pretty illusory,"said Michael Dooley, professor of corporate law at the University of Virginia.
"It's certainly an interesting question on whether this is a true transfer of ownership,"said tax attorney Robert Wood of San Francisco.
"It looks like the transaction
FEEDBACK:
Something to say about this topic? Submit a Letter to the Editor online
