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. - <br />.. • <br />~ ~ <br />1378 <br />(b) The partial acquisition caused a substantial change in the nature <br />of the farm operation. <br />(2) Amount of Payment. The payment shall be an amount, not to exceed <br />$20,000, nor less than $1,000, that is equal to the average annual net <br />earnings of the farm operation as determined under Paragraph 4-Sd. <br />c. Contribute Materiallv. The term "contribute materially" means that during the <br />2 taxable years prior to the taxable year in which the displacement occurred, or <br />during such other period as the Agency determines to be more equitable, the <br />business or farm operation: <br />(1) Had average annual gross receipts of at least $5,000; or <br />(2) Had average annual net earnings of at least $1,000; or <br />(3) Contributed at least 33-1/3 percent of the owner's or operator's average <br />annual gross income from all sources. <br />If the Agency determines that the application of these criteria would cause an <br />inequity or hardship, it shall waive this criteria. <br />d. Determination of Avera~e Annual Net Earninas of Business or Farm. <br />(1) General. The average annual net earnings of a business or farm <br />operation are one-half of its net earnings before Federal, State, and <br />local income taxes during the 2 taxable years immediately prior to the <br />taxable year in which it was displaced. If the business or farm was not <br />in operation for the full 2 taxable years prior to displacement, net <br />earnings shall be based on the actual period of operation at the <br />displacement site projected to an annual rate. Average annual net <br />earnings may be based upon a different period of time when the Agency <br />determines it to be more equitable. Net earnings include any <br />compensation obtained from the business or farm operation by its <br />owner, the owner's spouse, and dependents. <br />(2) Adiustments to Reported Income. To the extent that reported <br />income/profit on tax returns has been reduced by the inclusion of <br />expenses not actually incurred in the base period, the reported <br />income/profit shall be adjusted by adding back such expense (e.g., a loss <br />carried over from a previous year or carried back from a later year, or <br />4-9 <br />9/90 <br />