I

106TH CONGRESS

2D SESSION H. R. 5386

To amend the Internal Revenue Code of 1986 to provide economic relief

to farmers and ranchers, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

OCTOBER 4, 2000

Mr. ISAKSON (for himself, Mr. TANNER, Mr. NORWOOD, and Mr. KINGSTON)

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

economic relief to farmers and ranchers, and for other

purposes.

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; AMENDMENT OF 1986 CODE.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Paul Coverdell Open Space Conservation Farmers and

6 Ranchers Relief Act of 2000’’.

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend9 ment or repeal is expressed in terms of an amendment
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1 to, or repeal of, a section or other provision, the reference

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986.

4 SEC. 2. FINDINGS AND PURPOSE.

5 (a) FINDINGS.—Congress finds the following:

6 (1) Tax and economic policies have for a sus7 tained period of time inadvertently created a busi8 ness context for our Nation’s farming and ranching

9 families that, among other negative impacts, has

10 forced a significant number of them to liquidate

11 their land holdings and leave the business of farming

12 and ranching.

13 (2) This has particularly been the case in areas

14 surrounding growing urban centers and resort des15 tinations.

16 (3) Not only has this cost the Nation the his17 toric cultural and economic advantages of its farm18 ing and ranching communities, but it has frag19 mented many of our Nation’s large landscapes.

20 (4) The impact of this has been to deprive

21 many areas of open green space, which in turn has

22 not only negatively affected our human settlements

23 through the resulting sprawl, but has also dramati24 cally reduced the amount of sustaining habitat for

25 our natural communities of plants and animals.
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1 (b) PURPOSE.—The purpose of this Act is to provide

2 an economic mechanism that will address the issues de3 scribed in subsection (a) in a manner that will reduce the

4 current unfair economic burden carried by the Nation’s

5 farming and ranching families while also protecting our

6 lands in a manner that keeps them subject to private own7 ership, available for farming and ranching, and supportive

8 of our surviving but threatened natural communities of

9 plants and animals.

10 SEC. 3. QUALIFIED CONSERVATION CREDIT.

11 (a) IN GENERAL.—Subpart B of part IV of sub12 chapter A of chapter 1 (relating to other credits) is

13 amended by adding at the end the following new section:

14 ‘‘SEC. 30B. QUALIFIED CONSERVATION CREDIT.

15 ‘‘(a) GENERAL RULE.—There shall be allowed as a

16 credit against the tax imposed by this subtitle, in the case

17 of a qualified conservation organization, the amount of the

18 taxpayer’s qualified conservation expenditures for the tax19 able year.

20 ‘‘(b) QUALIFIED CONSERVATION EXPENDITURES.—

21 For purposes of this section—

22 ‘‘(1) IN GENERAL.—The term ‘qualified con23 servation expenditures’ means the sum of the quali24 fied conservation organization’s—

25 ‘‘(A) acquisition costs, and
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1 ‘‘(B) reserve funds.

2 ‘‘(2) ACQUISITION COSTS.—The term ‘acquisi3 tion costs’ means the sum of—

4 ‘‘(A) the lesser of—

5 ‘‘(i) the total of the amounts that a

6 qualified conservation organization paid

7 during the taxable year to acquire qualified

8 real property interests exclusively for con9 servation purposes, or

10 ‘‘(ii) the aggregate appraised value of

11 the qualified real property interests re12 ferred to in clause (i), plus

13 ‘‘(B) so much of the transaction costs rea14 sonably incurred during the taxable year in con15 nection with the acquisition of qualified real

16 property interests as do not exceed 2 percent of

17 the amount determined in subparagraph (A).

18 ‘‘(3) RESERVE FUNDS.—

19 ‘‘(A) IN GENERAL.—The term ‘reserve

20 funds’ means amounts permanently set aside by

21 a qualified conservation organization as an en22 dowment to fund the future costs of enforcing

23 and maintaining qualified real property inter24 ests acquired by the qualified conservation orga25 nization exclusively for conservation purposes.
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1 ‘‘(B) ENDOWMENT.—The term ‘endow2 ment’ means a restricted fund held in a seg3 regated account, the income and realized appre4 ciation of which may be expended solely for the

5 purposes designated under this section, and

6 which may be invested solely in qualified invest7 ments (as defined in section 501(c)(21)(D)(ii)).

8 ‘‘(C) LIMITATION.—The amount of reserve

9 funds which may be taken into account under

10 paragraph (1)(B) for the taxable year shall not

11 exceed 8 percent of the acquisition costs for

12 that taxable year.

13 ‘‘(c) QUALIFIED CONSERVATION ORGANIZATION.—

14 For purposes of this section, the term ‘qualified conserva15 tion organization’ means, with respect to any taxable

16 year—

17 ‘‘(1) an organization which—

18 ‘‘(A) is described in section 170(h)(3),

19 ‘‘(B) has been in existence for at least 2

20 calendar years immediately before the taxable

21 year, and

22 ‘‘(C) was organized to serve primarily con23 servation purposes (as defined in section

24 170(h)(4)),
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1 ‘‘(2) a limited partnership, all the general part2 ners of which are organizations described in para3 graph (1), or

4 ‘‘(3) a limited liability company, all the man5 agers of which are organizations described in para6 graph (1),

7 with respect to which neither the seller of the qualified

8 real property interest nor any party related or subordinate

9 to the seller (within the meaning of section 672(c)) would

10 be a disqualified person (as defined in section 4946) if

11 the organization were a private foundation.

12 ‘‘(d) QUALIFIED REAL PROPERTY INTEREST.—For

13 purposes of this section, the term ‘qualified real property

14 interest’ has the meaning given such term by section

15 170(h)(2)(C).

16 ‘‘(e) EXCLUSIVELY FOR CONSERVATION PUR17 POSES.—For purposes of this section, the term ‘exclusively

18 for conservation purposes’ has the meaning given such

19 term by section 170(h)(5), except that an acquisition shall

20 not be treated as exclusively for conservation purposes un21 less the instrument conveying the qualified real property

22 interest expressly provides that the conservation purposes

23 may be enforced by both the attorney general of the State

24 in which the real property is located and the qualified con25 servation organization.
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1 ‘‘(f) APPRAISED VALUE.—For purposes of this sec2 tion, the term ‘appraised value’ means the fair market

3 value as determined by a qualified appraisal (as defined

4 in section 155(a)(4) of the Deficit Reduction Act of 1984).

5 ‘‘(g) LIMITATION BASED ON AMOUNT OF TAX.—The

6 credit allowed under subsection (a) shall not exceed the

7 taxpayer’s liability for income tax (including unrelated

8 business income tax) for the taxable year.

9 ‘‘(h) LIMITATION ON AGGREGATE CREDIT ALLOW10 ABLE WITH RESPECT TO ACQUISITIONS OF QUALIFIED

11 REAL PROPERTY INTERESTS LOCATED IN A STATE.—

12 ‘‘(1) CREDIT MAY NOT EXCEED CREDIT

13 AMOUNT ALLOCATED TO ACQUISITION OF QUALIFIED

14 REAL PROPERTY INTEREST.—

15 ‘‘(A) IN GENERAL.—The amount of the

16 credit determined under subsection (a) for any

17 taxable year with respect to the acquisition of

18 any qualified real property interest shall not ex19 ceed the conservation credit dollar amount allo20 cated to such acquisition under this subsection.

21 ‘‘(B) TIME FOR MAKING ALLOCATION.—An

22 allocation shall be taken into account under

23 subparagraph (A) only if it is made not later

24 than the close of the calendar year in which the

25 qualified real property interest is acquired.
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1 ‘‘(C) ALLOCATION REDUCES AGGREGATE

2 AMOUNT AVAILABLE TO AGENCY.—Any con3 servation credit dollar amount allocated to the

4 acquisition of any qualified real property inter5 est for any calendar year shall reduce the ag6 gregate conservation credit dollar amount of the

7 allocating conservation credit agency for such

8 calendar year.

9 ‘‘(2) CONSERVATION CREDIT DOLLAR AMOUNT

10 FOR AGENCIES.—

11 ‘‘(A) IN GENERAL.—The aggregate con12 servation credit dollar amount which a con13 servation credit agency may allocate for any

14 calendar year is the portion of the State con15 servation credit ceiling allocated under this

16 paragraph for such calendar year to such agen17 cy.

18 ‘‘(B) STATE CEILING INITIALLY ALLO19 CATED TO STATE CONSERVATION CREDIT AGEN20 CIES.—Except as provided in subparagraphs

21 (F) and (G), the State conservation credit ceil22 ing for each calendar year shall be allocated to

23 the conservation credit agency of such State. If

24 there is more than 1 conservation credit agency
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1 of a State, all such agencies shall be treated

2 as a single agency.

3 ‘‘(C) STATE CONSERVATION CREDIT CEIL4 ING.—The State conservation credit ceiling ap5 plicable to any State for any calendar year shall

6 be an amount equal to the sum of—

7 ‘‘(i) the lesser of—

8 ‘‘(I) an amount equal to the ag9 gregate annual credit multiplied by a

10 fraction, the numerator of which is

11 the amount of land located in such

12 State that is used for agricultural

13 purposes and the denominator of

14 which is the amount of land in all

15 States that is used for agricultural

16 purposes, or

17 ‘‘(II) an amount equal to 4 per18 cent of the aggregate annual credit

19 for that year,

20 ‘‘(ii) the amount (if any) allocated

21 under subparagraph (D) to such State by

22 the Secretary,

23 ‘‘(iii) the unused State conservation

24 credit ceiling (if any) of such State for the

25 preceding calendar year,
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1 ‘‘(iv) the amount of the State con2 servation credit ceiling returned in the cal3 endar year, plus

4 ‘‘(v) the amount (if any) allocated

5 under subparagraph (E) to such State by

6 the Secretary.

7 For purposes of clause (i), the aggregate annual

8 credit is $4,000,000,000. For purposes of clause

9 (iii), the unused State conservation credit ceiling for

10 any calendar year is the excess (if any) of the sum

11 of the amounts described in clauses (i), (ii), and (iv)

12 over the aggregate conservation credit dollar amount

13 allocated for such year. For purposes of clause (iv),

14 the amount of State conservation credit ceiling

15 returned in the calendar year equals the conserva16 tion credit dollar amount previously allocated within

17 the State to any proposed acquisition of a qualified

18 real property interest which is not acquired within

19 the period required by the terms of the allocation or

20 to any proposed acquisition of a qualified real prop21 erty interest with respect to which an allocation is

22 canceled by mutual consent of the conservation cred23 it agency and the qualified conservation organization

24 receiving the allocation.
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1 ‘‘(D) UNUSED AGGREGATE ANNUAL CRED2 IT.—Any portion of the aggregate annual credit

3 for a calendar year that is not allocated to a

4 State’s conservation credit ceiling because of

5 the 4 percent limitation under subparagraph

6 (C)(i)(II) shall be allocated by the Secretary

7 among the remaining States, subject to such 4

8 percent limitation, in proportion to their respec9 tive land used for agricultural purposes.

10 ‘‘(E) UNUSED CONSERVATION CREDIT

11 CARRYOVERS ALLOCATED AMONG CERTAIN

12 STATES.—

13 ‘‘(i) IN GENERAL.—The unused con14 servation credit carryover of a State for

15 any calendar year shall be assigned to the

16 Secretary for allocation among qualified

17 States for the succeeding calendar year.

18 ‘‘(ii) UNUSED CONSERVATION CREDIT

19 CARRYOVER.—For purposes of this para20 graph, the unused conservation credit car21 ryover of a State for any calendar year is

22 the excess (if any) of the unused State

23 conservation credit ceiling for such year

24 (as defined in subparagraph (C)(iii)) over

25 the excess (if any) of—
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1 ‘‘(I) the aggregate conservation

2 credit dollar amount allocated for

3 such year, over

4 ‘‘(II) the sum of the amounts de5 scribed in clauses (i), (ii), and (iv) of

6 subparagraph (C).

7 ‘‘(iii) FORMULA FOR ALLOCATION OF

8 UNUSED CONSERVATION CREDIT

9 CARRYOVERS AMONG QUALIFIED

10 STATES.—The amount allocated under this

11 subparagraph to a qualified State for any

12 calendar year shall be the amount deter13 mined by the Secretary to bear the same

14 ratio to the aggregate unused conservation

15 credit carryovers of all States for the pre16 ceding calendar year as such State’s land

17 used for agricultural purposes for the cal18 endar year bears to the land used for agri19 cultural purposes of all qualified States for

20 the calendar year.

21 ‘‘(iv) QUALIFIED STATE.—For pur22 poses of this subparagraph, the term

23 ‘qualified State’ means, with respect to a

24 calendar year, any State—
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1 ‘‘(I) which allocated its entire

2 State conservation credit ceiling for

3 the preceding calendar year, and

4 ‘‘(II) for which a request is made

5 (not later than May 1 of the calendar

6 year) to receive an allocation under

7 clause (iii).

8 ‘‘(F) SPECIAL RULE FOR STATES WITH

9 CONSTITUTIONAL HOME RULE CITIES.—For

10 purposes of this subsection—

11 ‘‘(i) IN GENERAL.—The aggregate

12 conservation credit dollar amount for any

13 constitutional home rule city for any cal14 endar year shall be an amount which bears

15 the same ratio to the State conservation

16 credit ceiling for such calendar year as—

17 ‘‘(I) the land used for agricul18 tural purposes within a 25-mile radius

19 of such city, bears to

20 ‘‘(II) the land used for agricul21 tural purposes in the entire State.

22 ‘‘(ii) COORDINATION WITH OTHER AL23 LOCATIONS.—In the case of any State

24 which contains 1 or more constitutional

25 home rule cities, for purposes of applying
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1 this paragraph with respect to conserva2 tion credit agencies in such State other

3 than constitutional home rule cities, the

4 State conservation credit ceiling for any

5 calendar year shall be reduced by the ag6 gregate conservation credit dollar amounts

7 determined for such year for all constitu8 tional home rule cities in such State.

9 ‘‘(iii) CONSTITUTIONAL HOME RULE

10 CITY.—For purposes of this subparagraph,

11 the term ‘constitutional home rule city’ has

12 the meaning given such term by section

13 146(d)(3)(C).

14 ‘‘(G) STATE MAY PROVIDE FOR DIF15 FERENT ALLOCATION.—Rules similar to the

16 rules of section 146(e) (other than paragraph

17 (2)(B) thereof) shall apply for purposes of this

18 paragraph.

19 ‘‘(H) LAND USED FOR AGRICULTURAL

20 PURPOSES.—For purposes of this paragraph,

21 the term ‘land used for agricultural purposes’

22 means the number of acres classified as land in

23 farms in the 1997 Census of Agriculture con24 ducted by the United States Department of Ag25 riculture.
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1 ‘‘(I) SECRETARY.—For purposes of this

2 paragraph, the term ‘Secretary’ means the Sec3 retary of Agriculture and the Secretary of the

4 Interior, acting pursuant to jointly established

5 rules and procedures.

6 ‘‘(3) SPECIAL RULES.—

7 ‘‘(A) INTERESTS MUST BE LOCATED WITH8 IN JURISDICTION OF CREDIT AGENCY.—A con9 servation credit agency may allocate its aggre10 gate conservation credit dollar amount only

11 with respect to acquisitions of qualified real

12 property interests located in the jurisdiction of

13 the governmental unit of which such agency is

14 a part.

15 ‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF

16 LIMIT.—If the aggregate conservation credit

17 dollar amounts allocated by a conservation cred18 it agency for any calendar year exceed the por19 tion of the State conservation credit ceiling allo20 cated to such agency for such calendar year, the

21 conservation credit dollar amounts so allocated

22 shall be reduced (to the extent of such excess)

23 for acquisitions of qualified real property inter24 ests in the reverse order in which the alloca25 tions of such amounts were made.
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1 ‘‘(4) CONSERVATION CREDIT AGENCY.—For

2 purposes of this subsection, the term ‘conservation

3 credit agency’ means any agency authorized to carry

4 out this subsection.

5 ‘‘(i) REGULATIONS.—Except as provided in sub6 section (h)(2)(I), the Secretary shall prescribe such regu7 lations as may be necessary to carry out the purposes of

8 this section.

9 ‘‘(j) TERMINATION.—Subparagraph (A) of subsection

10 (h)(1) shall not apply to any amount allocated after De11 cember 31, 2005.’’.

12 (b) RECOGNITION OF GAIN.—Section 1001 (relating

13 to determination of amount of and recognition of gain or

14 loss) is amended by adding at the end the following new

15 subsection:

16 ‘‘(f) QUALIFIED REAL PROPERTY INTERESTS.—Gain

17 shall be recognized on the sale of a qualified real property

18 interest (as defined in section 30B(d)) to a qualified con19 servation organization (as defined in section 30B(c)) ex20 clusively for conservation purposes (as defined in section

21 30B(e)) only to the extent that the amount realized on

22 the sale exceeds the taxpayer’s adjusted basis in the entire

23 property to which the qualified real property interest re24 lates.’’.
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1 (c) BASIS ADJUSTMENT.—Section 1016 (relating to

2 adjustments to basis) is amended by redesignating sub3 section (e) as subsection (f) and by inserting after sub4 section (d) the following new subsection:

5 ‘‘(e) ADJUSTMENTS TO BASIS OF CERTAIN REAL

6 PROPERTY.—If the taxpayer has sold a qualified real

7 property interest in a transaction to which section 1001(f)

8 applies, then the taxpayer’s basis in the remaining prop9 erty shall be reduced (but not below zero) by the amount

10 realized on the sale.’’.

11 (d) CONFORMING AMENDMENTS.—

12 (1) PASSIVE LOSS RULES INAPPLICABLE.—Sec13 tion 469(d)(2)(A)(i) is amended to read as follows:

14 ‘‘(i) subpart D (other than section

15 30B) of part IV of subchapter A, or’’.

16 (2) UNRELATED BUSINESS INCOME TAX.—Sec17 tion 511(a)(1) is amended by striking ‘‘section 11.’’

18 and inserting ‘‘section 11, less any credits to which

19 the organization is entitled under section 30B.’’.

20 (3) DENIAL OF CHARITABLE CONTRIBUTION

21 DEDUCTION.—Section 170(e) is amended by adding

22 at the end the following new paragraph:

23 ‘‘(7) SPECIAL RULE FOR CONTRIBUTIONS OF

24 INTERESTS IN QUALIFIED CONSERVATION ORGANIZA25 TIONS.—No deduction shall be allowed for the con-
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1 tribution of an interest in a qualified conservation

2 organization (as defined in section 30B(c)) that has

3 acquired 1 or more qualified real property interests

4 in transactions to which section 30B applies.’’.

5 (4) CLASSIFICATION AS PARTNERSHIP.—Sec6 tion 761(a) is amended by adding at the end the fol7 lowing new sentence: ‘‘Such term also includes an

8 organization described in either section 30B(c)(2) or

9 section 30B(c)(3).’’.

10 (5) CLERICAL AMENDMENT.—The table of sec11 tions for subpart B of part IV of subchapter A of

12 chapter 1 is amended by adding at the end the fol13 lowing new item:

‘‘Sec. 30B. Qualified conservation credit.’’.

14 (e) EFFECTIVE DATE.—The amendments made by

15 this section shall apply to taxable years beginning after

16 December 31, 2000.

Æ