I

106TH CONGRESS

1ST SESSION H. R. 957

To amend the Internal Revenue Code of 1986 to provide for Farm and

Ranch Risk Management Accounts, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 3, 1999

Mr. HULSHOF (for himself, Mrs. THURMAN, Mr. COMBEST, Mr. HOUGHTON,

Mr. HERGER, Mr. MCCRERY, Mr. NUSSLE, Mr. ENGLISH, Mr. WATKINS,

Mr. HAYWORTH, Mr. WELLER, Mr. FOLEY, Mr. LEWIS of Kentucky, Mr.

BARRETT of Nebraska, Mr. CONDIT, Mr. BOEHNER, Mr. DOOLEY of California, Mr. EWING, Mr. MINGE, Mr. POMBO, Mr. BALDACCI, Mr. SMITH

of Michigan, Mr. HOSTETTLER, Mr. MORAN of Kansas, Mr. THUNE, Mr.

JENKINS, Mr. CALVERT, Mr. GUTKNECHT, Mr. OSE, Mr. HAYES, Mr.

TALENT, Ms. DANNER, Mrs. EMERSON, Mr. GORDON, Mrs. BONO, Mr.

SHOWS, Mr. NETHERCUTT, Mr. ISTOOK, Mr. SNYDER, Mr. BEREUTER,

Ms. WOOLSEY, Mr. PAUL, Mr. BOUCHER, Mr. DOOLITTLE, Mr. MURTHA,

Mr. HILL of Montana, Mr. SANDLIN, Mr. HILLEARY, Mr. FROST, Mr.

STEARNS, Mrs. CAPPS, Mr. MCHUGH, Mr. CLYBURN, Mr. HUTCHINSON,

Mr. HOLDEN, Mr. LATHAM, Mr. LAFALCE, Mr. SCARBOROUGH, Mr.

KLINK, Mr. BACHUS, Mr. TAYLOR of Mississippi, Mr. CALLAHAN, Mr.

BLUNT, Mr. SISISKY, Mr. REYNOLDS, Mr. HUNTER, Mr. BURTON of Indiana, Mr. PITTS, Mr. HASTINGS of Washington, Mr. LEACH, Mr.

RADANOVICH, Mr. COOK, Mr. ADERHOLT, Mr. METCALF, Mr. SOUDER,

Mr. TERRY, Mr. WALSH, Mr. QUINN, Mr. BONILLA, Mr. WHITFIELD,

Mr. CUNNINGHAM, Mr. RYUN of Kansas, Mr. DICKEY, Mr. MCINTOSH,

and Mr. BARTLETT of Maryland) introduced the following bill; which was

referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

for Farm and Ranch Risk Management Accounts, and

for other purposes.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Farm and Ranch Risk

5 Management Act’’.

6 SEC. 2. FARM AND RANCH RISK MANAGEMENT ACCOUNTS.

7 (a) IN GENERAL.—Subpart C of part II of sub8 chapter E of chapter 1 of the Internal Revenue Code of

9 1986 (relating to taxable year for which deductions taken)

10 is amended by inserting after section 468B the following

11 new section:

12 ‘‘SEC. 468C. FARM AND RANCH RISK MANAGEMENT AC13 COUNTS.

14 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi15 vidual engaged in an eligible farming business, there shall

16 be allowed as a deduction for any taxable year the amount

17 paid in cash by the taxpayer during the taxable year to

18 a Farm and Ranch Risk Management Account (herein19 after referred to as the ‘FARRM Account’).

20 ‘‘(b) LIMITATION.—The amount which a taxpayer

21 may pay into the FARRM Account for any taxable year

22 shall not exceed 20 percent of so much of the taxable in23 come of the taxpayer (determined without regard to this

24 section) which is attributable (determined in the manner
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1 applicable under section 1301) to any eligible farming

2 business.

3 ‘‘(c) ELIGIBLE FARMING BUSINESS.—For purposes

4 of this section, the term ‘eligible farming business’ means

5 any farming business (as defined in section 263A(e)(4))

6 which is not a passive activity (within the meaning of sec7 tion 469(c)) of the taxpayer.

8 ‘‘(d) FARRM ACCOUNT.—For purposes of this

9 section—

10 ‘‘(1) IN GENERAL.—The term ‘FARRM Ac11 count’ means a trust created or organized in the

12 United States for the exclusive benefit of the tax13 payer, but only if the written governing instrument

14 creating the trust meets the following requirements:

15 ‘‘(A) No contribution will be accepted for

16 any taxable year in excess of the amount al17 lowed as a deduction under subsection (a) for

18 such year.

19 ‘‘(B) The trustee is a bank (as defined in

20 section 408(n)) or another person who dem21 onstrates to the satisfaction of the Secretary

22 that the manner in which such person will ad23 minister the trust will be consistent with the re24 quirements of this section.
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1 ‘‘(C) The assets of the trust consist en2 tirely of cash or of obligations which have ade3 quate stated interest (as defined in section

4 1274(c)(2)) and which pay such interest not

5 less often than annually.

6 ‘‘(D) All income of the trust is distributed

7 currently to the grantor.

8 ‘‘(E) The assets of the trust will not be

9 commingled with other property except in a

10 common trust fund or common investment

11 fund.

12 ‘‘(2) ACCOUNT TAXED AS GRANTOR TRUST.—

13 The grantor of a FARRM Account shall be treated

14 for purposes of this title as the owner of such Ac15 count and shall be subject to tax thereon in accord16 ance with subpart E of part I of subchapter J of

17 this chapter (relating to grantors and others treated

18 as substantial owners).

19 ‘‘(e) INCLUSION OF AMOUNTS DISTRIBUTED.—

20 ‘‘(1) IN GENERAL.—Except as provided in para21 graph (2), there shall be includible in the gross in22 come of the taxpayer for any taxable year—

23 ‘‘(A) any amount distributed from a

24 FARRM Account of the taxpayer during such

25 taxable year, and
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1 ‘‘(B) any deemed distribution under—

2 ‘‘(i) subsection (f)(1) (relating to de3 posits not distributed within 5 years),

4 ‘‘(ii) subsection (f)(2) (relating to ces5 sation in eligible farming business), and

6 ‘‘(iii) subparagraph (A) or (B) of sub7 section (f)(3) (relating to prohibited trans8 actions and pledging account as security).

9 ‘‘(2) EXCEPTIONS.—Gross income shall not in10 clude the distribution of any contribution paid dur11 ing a taxable year to a FARRM Account to the ex12 tent that such contribution exceeds the limitation

13 applicable under subsection (b) if requirements simi14 lar to the requirements of section 408(d)(4) are met.

15 ‘‘(3) EXCLUSION FROM SELF-EMPLOYMENT

16 TAX.—Amounts included in gross income under this

17 subsection shall not be included in determining net

18 earnings from self-employment under section 1402.

19 ‘‘(f) SPECIAL RULES.—

20 ‘‘(1) TAX ON DEPOSITS IN ACCOUNT WHICH

21 ARE NOT DISTRIBUTED WITHIN 5 YEARS.—

22 ‘‘(A) IN GENERAL.—If, at the close of any

23 taxable year, there is a nonqualified balance in

24 any FARRM Account—
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1 ‘‘(i) there shall be deemed distributed

2 from such Account during such taxable

3 year an amount equal to such balance, and

4 ‘‘(ii) the taxpayer’s tax imposed by

5 this chapter for such taxable year shall be

6 increased by 10 percent of such deemed

7 distribution.

8 The preceding sentence shall not apply if an

9 amount equal to such nonqualified balance is

10 distributed from such Account to the taxpayer

11 before the due date (including extensions) for

12 filing the return of tax imposed by this chapter

13 for such year (or, if earlier, the date the tax14 payer files such return for such year).

15 ‘‘(B) NONQUALIFIED BALANCE.—For pur16 poses of subparagraph (A), the term ‘non17 qualified balance’ means any balance in the Ac18 count on the last day of the taxable year which

19 is attributable to amounts deposited in such Ac20 count before the 4th preceding taxable year.

21 ‘‘(C) ORDERING RULE.—For purposes of

22 this paragraph, distributions from a FARRM

23 Account shall be treated as made from deposits

24 in the order in which such deposits were made,

25 beginning with the earliest deposits.
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1 ‘‘(2) CESSATION IN ELIGIBLE FARMING BUSI2 NESS.—At the close of the first disqualification pe3 riod after a period for which the taxpayer was en4 gaged in an eligible farming business, there shall be

5 deemed distributed from the FARRM Account (if

6 any) of the taxpayer an amount equal to the balance

7 in such Account at the close of such disqualification

8 period. For purposes of the preceding sentence, the

9 term ‘disqualification period’ means any period of 2

10 consecutive taxable years for which the taxpayer is

11 not engaged in an eligible farming business.

12 ‘‘(3) CERTAIN RULES TO APPLY.—Rules similar

13 to the following rules shall apply for purposes of this

14 section:

15 ‘‘(A) Section 408(e)(2) (relating to loss of

16 exemption of account where individual engages

17 in prohibited transaction).

18 ‘‘(B) Section 408(e)(4) (relating to effect

19 of pledging account as security).

20 ‘‘(C) Section 408(g) (relating to commu21 nity property laws).

22 ‘‘(D) Section 408(h) (relating to custodial

23 accounts).

24 ‘‘(4) TIME WHEN PAYMENTS DEEMED MADE.—

25 For purposes of this section, a taxpayer shall be
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1 deemed to have made a payment to a FARRM Ac2 count on the last day of a taxable year if such pay3 ment is made on account of such taxable year and

is made within 31 4 ⁄2 months after the close of such

5 taxable year.

6 ‘‘(5) INDIVIDUAL.—For purposes of this sec7 tion, the term ‘individual’ shall not include an estate

8 or trust.

9 ‘‘(g) REPORTS.—The trustee of a FARRM Account

10 shall make such reports regarding such Account to the

11 Secretary and to the person for whose benefit the Account

12 is maintained with respect to contributions, distributions,

13 and such other matters as the Secretary may require

14 under regulations. The reports required by this subsection

15 shall be filed at such time and in such manner and fur16 nished to such persons at such time and in such manner

17 as may be required by those regulations.’’.

18 (b) DEDUCTION ALLOWED IN COMPUTING AD19 JUSTED GROSS INCOME.—Subsection (a) of section 62 of

20 such Code (defining adjusted gross income) is amended

21 by inserting after paragraph (17) the following new para22 graph:

23 ‘‘(18) CONTRIBUTIONS TO FARM AND RANCH

24 RISK MANAGEMENT ACCOUNTS.—The deduction al25 lowed by section 468C(a).’’
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1 (c) TAX ON EXCESS CONTRIBUTIONS.—

2 (1) Subsection (a) of section 4973 of such Code

3 (relating to tax on certain excess contributions) is

4 amended by striking ‘‘or’’ at the end of paragraph

5 (3), by redesignating paragraph (4) as paragraph

6 (5), and by inserting after paragraph (3) the follow7 ing new paragraph:

8 ‘‘(4) a FARRM Account (within the meaning of

9 section 468C(d)), or’’.

10 (2) Section 4973 of such Code is amended by

11 adding at the end the following new subsection:

12 ‘‘(g) EXCESS CONTRIBUTIONS TO FARRM AC13 COUNTS.—For purposes of this section, in the case of a

14 FARRM Account (within the meaning of section

15 468C(d)), the term ‘excess contributions’ means the

16 amount by which the amount contributed for the taxable

17 year to the Account exceeds the amount which may be con18 tributed to the Account under section 468C(b) for such

19 taxable year. For purposes of this subsection, any con20 tribution which is distributed out of the FARRM Account

21 in a distribution to which section 468C(e)(2)(B) applies

22 shall be treated as an amount not contributed.’’.

23 (d) TAX ON PROHIBITED TRANSACTIONS.—
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1 (1) Subsection (c) of section 4975 of such Code

2 (relating to prohibited transactions) is amended by

3 adding at the end the following new paragraph:

4 ‘‘(6) SPECIAL RULE FOR FARRM ACCOUNTS.—

5 A person for whose benefit a FARRM Account

6 (within the meaning of section 468C(d)) is estab7 lished shall be exempt from the tax imposed by this

8 section with respect to any transaction concerning

9 such Account (which would otherwise be taxable

10 under this section) if, with respect to such trans11 action, the account ceases to be a FARRM Account

12 by reason of the application of section 468C(f)(3)(A)

13 to such Account.’’.

14 (2) Paragraph (1) of section 4975(e) of such

15 Code is amended by redesignating subparagraphs

16 (E) and (F) as subparagraphs (F) and (G), respec17 tively, and by inserting after subparagraph (D) the

18 following new subparagraph:

19 ‘‘(E) a FARRM Account described in sec20 tion 468C(d),’’.

21 (e) FAILURE TO PROVIDE REPORTS ON FARRM AC22 COUNTS.—Paragraph (2) of section 6693(a) of such Code

23 (relating to failure to provide reports on certain tax-fa24 vored accounts or annuities) is amended by redesignating

25 subparagraphs (C) and (D) as subparagraphs (D) and
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1 (E), respectively, and by inserting after subparagraph (B)

2 the following new subparagraph:

3 ‘‘(C) section 468C(g) (relating to FARRM

4 Accounts),’’.

5 (f) CLERICAL AMENDMENT.—The table of sections

6 for subpart C of part II of subchapter E of chapter 1 of

7 such Code is amended by inserting after the item relating

8 to section 468B the following new item:

‘‘Sec. 468C. Farm and Ranch Risk Management Accounts.’’.

9 (g) EFFECTIVE DATE.—The amendments made by

10 this section shall apply to taxable years beginning after

11 the date of the enactment of this Act.

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