II

106TH CONGRESS

2D SESSION S. 2746

To amend the Internal Revenue Code of 1986 to allow a credit against

income tax for investment by farmers in value-added agricultural property.

IN THE SENATE OF THE UNITED STATES

JUNE 15, 2000

Mr. ASHCROFT (for himself and Mr. GRAMS) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to allow a

credit against income tax for investment by farmers in

value-added agricultural property.

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 ‘‘Farmers’ Value-Added

5 Agricultural Investment Tax Credit Act’’.

6 SEC. 2. CREDIT FOR FARMER INVESTMENT IN VALUE7 ADDED AGRICULTURAL PROPERTY.

8 (a) IN GENERAL.—Subpart D of part IV of sub9 chapter A of chapter 1 of the Internal Revenue Code of
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1 1986 (relating to business related credits) is amended by

2 adding at the end the following new section:

3 ‘‘SEC. 45D. VALUE-ADDED AGRICULTURAL PROPERTY IN4 VESTMENT CREDIT.

5 ‘‘(a) GENERAL RULE.—For purposes of section 38,

6 in the case of a taxpayer who is—

7 ‘‘(1) an eligible person, or

8 ‘‘(2) a farmer-owned entity,

9 the value-added agricultural property investment credit

10 determined under this section for any taxable year is 50

11 percent of the basis of any qualified value-added agricul12 tural property placed in service during the taxable year.

13 In the case of a farmer-owned entity, such credit shall be

14 allocated on a pro rata basis among eligible persons hold15 ing qualified interests in such entity as of the last day

16 of such taxable year.

17 ‘‘(b) MAXIMUM CREDIT.—For purposes of subsection

18 (a)—

19 ‘‘(1) PROPERTY PLACED IN SERVICE BY ELIGI20 BLE PERSON.—In the case of property placed in

21 service during a taxable year by an eligible person,

22 the credit determined under this section for such

23 year shall not exceed $30,000, reduced by the

24 amount of the creditable investments allowed for the

25 taxable year under paragraph (2).
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1 ‘‘(2) PROPERTY PLACED IN SERVICE BY FARM2 ER-OWNED ENTITY.—

3 ‘‘(A) IN GENERAL.—In the case of prop4 erty placed in service by a farmer-owned entity,

5 the credit determined under this section shall

6 not exceed the sum of the eligible person’s cred7 itable investments in such entity as of the date

8 such property is placed in service.

9 ‘‘(B) CREDITABLE INVESTMENTS.—For

10 purposes of subparagraph (A), the term ‘cred11 itable investments’ means, with respect to any

12 property placed in service by a farmer-owned

13 entity, the aggregate qualified investments

14 made by the eligible person in such entity, re15 duced (but not below zero) by the sum of—

16 ‘‘(i) the amount of the aggregate

17 qualified investments made by such person

18 in such entity which were taken into ac19 count under this section with respect to

20 property previously placed in service by

21 such entity, and

22 ‘‘(ii) the amount of the aggregate

23 qualified investments made by such person

24 in all other farmer-owned entities which

25 were taken into account under this section
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1 with respect to property previously placed

2 in service by such other entities.

3 ‘‘(C) LIMITATION.—For purposes of this

4 paragraph, the aggregate qualified investments

5 made by the eligible person which may be taken

6 into account for any taxable year shall not ex7 ceed $30,000.

8 ‘‘(c) DEFINITIONS.—For purposes of this section—

9 ‘‘(1) QUALIFIED VALUE-ADDED AGRICULTURAL

10 PROPERTY.—The term ‘qualified value-added agri11 cultural property’ means property—

12 ‘‘(A) which is used to add value to a good

13 or product, suitable for food or nonfood use, de14 rived in whole or in part from organic matter

15 which is available on a renewable basis, includ16 ing agricultural crops and agricultural wastes

17 and residues, wood wastes and residues, and

18 domesticated animal wastes,

19 ‘‘(B)(i) to which section 168 applies with20 out regard to any useful life, or

21 ‘‘(ii) with respect to which depreciation (or

22 amortization in lieu of depreciation) is allowable

23 and having a useful life (determined as of the

24 time such property is placed in service) of 3

25 years or more, and
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1 ‘‘(C) which is owned and operated by an

2 eligible person or a farmer-owned entity.

3 ‘‘(2) ELIGIBLE PERSON.—

4 ‘‘(A) IN GENERAL.—The term ‘eligible per5 son’ means a person who materially participates

6 during the taxable year in an eligible farming

7 business.

8 ‘‘(B) MATERIAL PARTICIPATION.—For

9 purposes of subparagraph (A), the determina10 tion of whether a person materially participates

11 in the trade or business of farming shall be

12 made in a manner similar to the manner in

13 which such determination is made under section

14 2032A(e)(6). In the case that the person is a

15 corporation, cooperative, partnership, estate, or

16 trust, such determination shall be made at the

17 shareholder, partner, or beneficial interests level

18 (as the case may be).

19 ‘‘(C) ELIGIBLE FARMING BUSINESS.—For

20 purposes of subparagraph (A), the term ‘eligible

21 farming business’ means a farming business (as

22 defined in section 263A(e)(4)) which is not a

23 passive activity (within the meaning of section

24 469(c)).

25 ‘‘(3) FARMER-OWNED ENTITY.—
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1 ‘‘(A) IN GENERAL.—The term ‘farmer2 owned entity’ means—

3 ‘‘(i) a corporation (including an S cor4 poration) in which eligible persons own 50

5 percent or more of the total voting power

6 of the stock and 50 percent or more (in

7 value) of the stock,

8 ‘‘(ii) a partnership in which eligible

9 persons own 50 percent or more of the

10 total voting power of the profits interest

11 and 50 percent or more (in value) of the

12 profits interest, and

13 ‘‘(iii) a cooperative in which eligible

14 persons own 50 percent or more of the

15 total voting power of the member patron16 age interests and 50 percent or more (in

17 value) of the member patronage interests.

18 ‘‘(B) CONSTRUCTIVE OWNERSHIP

19 RULES.—For purposes of subparagraph (A),

20 rules similar to the rules of section

21 263A(e)(2)(B) shall apply; except that, in ap22 plying such rules, the members of an individ23 ual’s family shall be the individuals described in

24 subparagraph (C).
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1 ‘‘(C) MEMBERS OF FAMILY.—The family

2 of any individual shall include only his spouse

3 and children, grandchildren, and great grand4 children (whether by the whole or half blood),

5 and the spouses of his children, grandchildren,

6 and great grandchildren, who reside in the

7 same household or jointly operate farming busi8 nesses (as defined in section 263A(e)(4)). For

9 purposes of the preceding sentence, a child who

10 is legally adopted, or who is placed with the

11 taxpayer by an authorized placement agency for

12 adoption by the taxpayer, shall be treated as a

13 child by blood.

14 ‘‘(4) QUALIFIED INVESTMENTS.—

15 ‘‘(A) IN GENERAL.—The term ‘qualified

16 investments’ means a payment of cash for the

17 purchase of a qualified equity interest in a

18 farmer-owned entity.

19 ‘‘(B) QUALIFIED EQUITY INTEREST.—The

20 term ‘qualified equity interest’ means—

21 ‘‘(i) any stock in a domestic corpora22 tion if such stock is acquired by the tax23 payer after December 31, 2000, and before

24 January 1, 2007, at its original issue (di-
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1 rectly or through an underwriter) from the

2 corporation solely in exchange for cash,

3 ‘‘(ii) any capital or profits interest in

4 a domestic partnership if such interest is

5 acquired by the taxpayer after December

6 31, 2000, and before January 1, 2007, and

7 ‘‘(iii) any patronage interest in a co8 operative if such interest is acquired by the

9 taxpayer after December 31, 2000, and be10 fore January 1, 2007.

11 Rules similar to the rules of section 1202(c)(3)

12 shall apply for purposes of this paragraph.

13 ‘‘(d) SPECIAL RULES.—For purposes of this

14 section—

15 ‘‘(1) TREATMENT OF MARRIED INDIVIDUALS.—

16 In the case of a separate return by a married indi17 vidual (as defined in section 7703), subsection

18 (b)(3)(A) shall be applied by substituting ‘$15,000’

19 for ‘$30,000’.

20 ‘‘(2) APPLICABLE RULES.—Under regulations

21 prescribed by the Secretary—

22 ‘‘(A) ALLOCATION OF CREDIT IN THE CASE

23 OF ESTATES AND TRUSTS.—Rules similar to the

24 rules of subsection (d) of section 52 shall apply.
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1 ‘‘(B) CERTAIN PROPERTY NOT ELIGI2 BLE.—Rules similar to the rules of section

3 50(b) shall apply.

4 ‘‘(3) BASIS ADJUSTMENT.—For purposes of

5 this subtitle, if a credit is allowed under this section

6 to any eligible person with respect to qualified value7 added agricultural property, the basis of such prop8 erty shall be reduced by the amount of the credit so

9 allowed and increased by the amount of recapture

10 under subsection (e).

11 ‘‘(e) RECAPTURE IN THE CASE OF CERTAIN DISPOSI12 TIONS.—

13 ‘‘(1) IN GENERAL.—Under regulations pre14 scribed by the Secretary, rules similar to the rules

15 of section 50(a) shall apply with respect to an eligi16 ble person if, within the 5-year period beginning on

17 the date qualified value-added agricultural property

18 with respect to which such person was allowed a

19 credit under subsection (a) is originally placed in

20 service—

21 ‘‘(A) such property ceases to be qualified

22 for purposes of this section,

23 ‘‘(B) the eligible person or the farmer24 owned entity (as the case may be) disposes of

25 all or part of such property, or
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1 ‘‘(C) the eligible person or the farmer2 owned entity (as the case may be) ceases to be

3 an eligible person or farmer-owned entity for

4 purposes of this section.

5 ‘‘(2) SPECIAL RULES IN EVENT OF DEATH.—

6 ‘‘(A) IN GENERAL.—The period in para7 graph (1) shall be suspended with respect to an

8 eligible person for the 2-year period beginning

9 on the date of death of such person.

10 ‘‘(B) HEIRS WHO ARE ELIGIBLE PER11 SONS.—In the case that an heir of an eligible

12 person is also an eligible person, neither para13 graph (1) nor subparagraph (A) of this para14 graph (unless elected by such heir) shall apply

15 with respect to the transfer of property to such

16 heir.

17 ‘‘(f) REGULATIONS.—The Secretary shall prescribe

18 such regulations as may be necessary to carry out the pur19 poses of this section.

20 ‘‘(g) TERMINATION.—This section shall not apply to

21 property placed in service after December 31, 2006.’’.

22 (b) CREDIT ALLOWED AS PART OF GENERAL BUSI23 NESS CREDIT.—Section 38(b) of such Code (defining cur24 rent year business credit) is amended by striking ‘‘plus’’

25 at the end of paragraph (11), by striking the period at
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1 the end of paragraph (12) and inserting ‘‘, plus’’, and by

2 adding at the end the following new paragraph:

3 ‘‘(13) in the case of an eligible person (as de4 fined in section 45D(c)), the value-added agricul5 tural property investment credit determined under

6 section 45D(a).’’.

7 (c) CREDIT ALLOWABLE AGAINST MINIMUM TAX.—

8 (1) IN GENERAL.—Subsection (c) of section 38

9 of such Code is amended by redesignating paragraph

10 (3) as paragraph (4) and by inserting after para11 graph (2) the following new paragraph:

12 ‘‘(3) VALUE-ADDED AGRICULTURAL PROPERTY

13 INVESTMENT CREDIT ALLOWED AGAINST MINIMUM

14 TAX.—

15 ‘‘(A) IN GENERAL.—The amount deter16 mined under paragraph (1)(A) shall be reduced

17 by the portion of the value-added agricultural

18 property investment credit not used against the

19 normal limitation.

20 ‘‘(B) PORTION OF VALUE-ADDED AGRICUL21 TURAL PROPERTY INVESTMENT CREDIT NOT

22 USED AGAINST NORMAL LIMITATION.—For pur23 poses of subparagraph (A), the portion of the

24 value-added agricultural property investment
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1 credit not used against the normal limitation is

2 the excess (if any) of—

3 ‘‘(i) the portion of the credit allowable

4 under subsection (a) which is attributable

5 to the value-added agricultural property in6 vestment credit, over

7 ‘‘(ii) the limitation of paragraph (1)

8 (determined without regard to this para9 graph) reduced by the portion of the credit

10 under subsection (a) which is not so attrib11 utable.’’.

12 (2) CONFORMING AMENDMENT.—Subclause (II)

13 of section 38(c)(2)(A)(ii) of such Code is amended

14 by inserting ‘‘or the value-added agricultural prop15 erty investment credit’’ after ‘‘employment credit’’.

16 (d) LIMITATION ON CARRYBACK.—Section 39(d) of

17 such Code is amended by adding at the end the following

18 new paragraph:

19 ‘‘(9) NO CARRYBACK OF VALUE-ADDED AGRI20 CULTURAL PROPERTY INVESTMENT CREDIT BEFORE

21 EFFECTIVE DATE.—No portion of the unused busi22 ness credit for any taxable year which is attributable

23 to the credit determined under section 45D may be

24 carried back to any taxable year ending before the

25 date of the enactment of section 45D.’’.
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1 (e) DEDUCTION FOR CERTAIN UNUSED BUSINESS

2 CREDITS.—Section 196(c) of such Code is amended by

3 striking ‘‘and’’ at the end of paragraph (7), by striking

4 the period at the end of paragraph (8) and inserting ‘‘,

5 and’’, and by adding after paragraph (8) the following new

6 paragraph:

7 ‘‘(9) the value-added agricultural property in8 vestment credit determined under section 45D.’’.

9 (f) BASIS ADJUSTMENT.—Section 1016(a) of such

10 Code is amended by striking ‘‘and’’ at the end of para11 graph (26), by striking the period at the end of paragraph

12 (27) and inserting ‘‘, and’’, and by adding at the end the

13 following new paragraph:

14 ‘‘(28) to the extent provided in section

15 45D(d)(3), in the case of payments with respect to

16 which a credit has been allowed under section 38.’’.

17 (g) CLERICAL AMENDMENT.—The table of sections

18 for subpart D of part IV of subchapter A of chapter 1

19 of such Code is amended by adding at the end the fol20 lowing new section:

‘‘Sec. 45D. Value-added agricultural property investment credit.’’.

21 (h) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to qualified investments (as defined

23 in section 45D(c)(5) of the Internal Revenue Code of 1986
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1 (as added by this section)) made, and property placed in

2 service, after December 31, 2000.

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