II

106TH CONGRESS

2D SESSION S. 2203

To amend title 26 of the Taxpayer Relief Act of 1986 to allow income

averaging for fishermen without negative Alternative Minimum Tax treatment, for the creation of risk management accounts for fishermen and

for other purposes.

IN THE SENATE OF THE UNITED STATES

MARCH 7, 2000

Mr. MURKOWSKI (for himself and Mr. STEVENS) introduced the following bill;

which was read twice and referred to the Committee on Finance

A BILL

To amend title 26 of the Taxpayer Relief Act of 1986 to

allow income averaging for fishermen without negative

Alternative Minimum Tax treatment, for the creation

of risk management accounts for fishermen 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.

4 This Act may be referred to as the ‘‘Fair Tax Treat5 ment for Fishermen Act of 2000’’.
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1 SEC. 2. INCOME AVERAGING FOR FISHERMEN WITHOUT IN2 CREASING ALTERNATIVE MINIMUM LIABIL3 ITY.

4 (a) IN GENERAL.—Section 55(c) (defining regular

5 tax) is amended by redesignating paragraph (2) as para6 graph (3) and by inserting after paragraph (1) the fol7 lowing:

8 ‘‘(2) COORDINATION WITH INCOME AVERAGING

9 FOR FISHERMEN.—Solely for purposes of this sec10 tion, section 1301 (relating to averaging of fishing

11 income) shall not apply in computing the regular

12 tax.’’.

13 (b) ALLOWING INCOME AVERAGING FOR FISHER14 MEN.—

15 (1) IN GENERAL.—Section 1301(a) is amended

16 by striking ‘‘farming business’’ and inserting ‘‘farm17 ing business or fishing business,’’.

18 (2) DEFINITION OF ELECTED FARM INCOME.—

19 (A) IN GENERAL.—Clause (i) of section

20 1301(b)(1)(A) is amended by inserting ‘‘or fish21 ing business’’ before the semicolon.

22 (B) CONFORMING AMENDMENT.—Subpara23 graph (B) of section 1301(b)(1) is amended by

24 inserting ‘‘or fishing business’’ after ‘‘farming

25 business’’ both places it occurs.
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1 (3) DEFINITION OF FISHING BUSINESS.—Sec2 tion 1301(b) is amended by adding at the end the

3 following new paragraph:

4 ‘‘(4) FISHING BUSINESS.—The term ‘fishing

5 business’ means the conduct of commercial fishing

6 (as defined in section 3 of the Magnuson-Stevens

7 Fishery Conservation and Management Act (16

8 U.S.C. 1802, Public Law 94–265 as amended).)’’.

9 SEC. 3. FISHING RISK MANAGEMENT ACCOUNTS.

10 (a) IN GENERAL.—Subpart C of part II of sub11 chapter E of chapter 1 (relating to taxable year for which

12 deductions taken) is amended by inserting after section

13 468B the following:

14 ‘‘SEC. 468C. FISHING RISK MANAGEMENT ACCOUNTS.

15 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi16 vidual engaged in an eligible commercial fishing activity,

17 there shall be allowed as a deduction for any taxable year

18 the amount paid in cash by the taxpayer during the tax19 able year Fishing Risk Management Account (hereinafter

20 referred to as the ‘FisheRMen Account’).

21 ‘‘(b) LIMITATION.—

22 ‘‘(1) CONTRIBUTIONS.—The amount which a

23 taxpayer may pay into the FisheRMen Account for

24 any taxable year shall not exceed 20 percent of so

25 much of the taxable income of the taxpayer (deter-
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1 mined without regard to this section) which is at2 tributable (determined in the manner applicable

3 under section 1301) to any eligible commercial fish4 ing activity.

5 ‘‘(2) DISTRIBUTIONS.—Distributions from a

6 FisheRMen Account may not be used to purchase,

7 lease, or finance any new fishing vessel, add capacity

8 to any fishery, or otherwise contribute to the over9 capitalization of any fishery. The Secretary of Com10 merce shall implement regulations to enforce this

11 paragraph.

12 ‘‘(c) ELIGIBLE BUSINESSES.—For purposes of this

13 section—

14 ‘‘(1) COMMERCIAL FISHING ACTIVITY.—The

15 term ‘commercial fishing activity’ has the meaning

16 given the term ‘commercial fishing’ by section (3) of

17 the Magnuson-Stevens Fishery Conservation and

18 Management Act (16 U.S.C. 1802, Public Law 94–

19 265 as amended) but only if such fishing is not a

20 passive activity (within the meaning of section

21 469(c)) of the taxpayer.

22 ‘‘(d) FISHERMEN ACCOUNT.—For purposes of this

23 section—

24 ‘‘(1) IN GENERAL.—The term ‘FisheRMen Ac25 count’ means a trust created or organized in the
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1 United States for the exclusive benefit of the tax2 payer, but only if the written governing instrument

3 creating the trust meets the following requirements:

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

5 any taxable year in excess of the amount al6 lowed as a deduction under subsection (a) for

7 such year.

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

9 section 408(n)) or another person who dem10 onstrates to the satisfaction of the Secretary

11 that the manner in which such person will ad12 minister the trust will be consistent with the re13 quirements of this section.

14 ‘‘(C) The assets of the trust consist en15 tirely of cash or of obligations which have ade16 quate stated interest (as defined in section

17 1274(c)(2)) and which pay such interest not

18 less often than annually.

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

20 currently to the grantor.

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

22 commingled with other property except in a

23 common trust fund or common investment

24 fund.
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1 ‘‘(2) ACCOUNT TAXED AS GRANTOR TRUST.—

2 The grantor of a FisheRMen Account shall be treat3 ed for purposes of this title as the owner of such Ac4 count and shall be subject to tax thereon in accord5 ance with subpart E of part I of subchapter J of

6 this chapter (relating to grantors and others treated

7 as substantial owners).

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

9 ‘‘(1) IN GENERAL.—Except as provided in para10 graph (2), there shall be includible in the gross in11 come of the taxpayer for any taxable year—

12 ‘‘(A) any amount distributed from a Fish13 eRMen Account of the taxpayer during such

14 taxable year, and

15 ‘‘(B) any deemed distribution under—

16 ‘‘(i) subsection (f)(1) (relating to de17 posits not distributed within 5 years),

18 ‘‘(ii) subsection (f)(2) (relating to ces19 sation in eligible commercial fishing activi20 ties), and

21 ‘‘(iii) subparagraph (A) or (B) of sub22 section (f)(3) (relating to prohibited trans23 actions and pledging account as security).

24 ‘‘(2) EXCEPTIONS.—Paragraph (1)(A) shall not

25 apply to—
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1 ‘‘(A) any distribution to the extent attrib2 utable to income of the Account, and

3 ‘‘(B) the distribution of any contribution

4 paid during a taxable year to a FisheRMen Ac5 count to the extent that such contribution ex6 ceeds the limitation applicable under subsection

7 (b) if requirements similar to the requirements

8 of section 408(d)(4) are met.

9 For purposes of subparagraph (A), distributions

10 shall be treated as first attributable to income and

11 then to other amounts.

12 ‘‘(f) SPECIAL RULES.—

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

14 ARE NOT DISTRIBUTED WITHIN 5 YEARS.—

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

16 taxable year, there is a nonqualified balance in

17 any FisheRMen Account—

18 ‘‘(i) there shall be deemed distributed

19 from such Account during such taxable

20 year an amount equal to such balance, and

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

22 this chapter for such taxable year shall be

23 increased by 10 percent of such deemed

24 distribution.
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1 The preceding sentence shall not apply if an

2 amount equal to such nonqualified balance is

3 distributed from such Account to the taxpayer

4 before the due date (including extensions) for

5 filing the return of tax imposed by this chapter

6 for such year (or, if earlier, the date the tax7 payer files such return for such year).

8 ‘‘(B) NONQUALIFIED BALANCE.—For pur9 poses of subparagraph (A), the term ‘non10 qualified balance’ means any balance in the Ac11 count on the last day of the taxable year which

12 is attributable to amounts deposited in such Ac13 count before the 4th preceding taxable year.

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

15 this paragraph, distributions from a FisheRMen

16 Account (other than distributions of current in17 come) shall be treated as made from deposits in

18 the order in which such deposits were made, be19 ginning with the earliest deposits.

20 ‘‘(2) CESSATION IN ELIGIBLE BUSINESS.—At

21 the close of the first disqualification period after a

22 period for which the taxpayer was engaged in an eli23 gible commercial fishing activity, there shall be

24 deemed distributed from the FisheRMen Account of

25 the taxpayer an amount equal to the balance in such
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1 Account (if any) at the close of such disqualification

2 period. For purposes of the preceding sentence, the

3 term ‘disqualification period’ means any period of 2

4 consecutive taxable years for which the taxpayer is

5 not engaged in an eligible commercial fishing activ6 ity.

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

8 to the following rules shall apply for purposes of this

9 section:

10 ‘‘(A) Section 220(f)(8) (relating to treat11 ment on death).

12 ‘‘(B) Section 408(e)(2) (relating to loss of

13 exemption of account where individual engages

14 in prohibited transaction).

15 ‘‘(C) Section 408(e)(4) (relating to effect

16 of pledging account as security).

17 ‘‘(D) Section 408(g) (relating to commu18 nity property laws).

19 ‘‘(E) Section 408(h) (relating to custodian

20 accounts).

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

22 For purposes of this section, a taxpayer shall be

23 deemed to have made a payment to a FisheRMen

24 Account on the last day of a taxable year if such

25 payment is made on account of such taxable year
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1 and is made on or before the due date (without re2 gard to extensions) for filing the return of tax for

3 such taxable year.

4 ‘‘(5) INDIVIDUAL.—For purposes of this sec5 tion, the term ‘individual’ shall not include an estate

6 or trust.

7 ‘‘(6) DEDUCTION NOT ALLOWED FOR SELF-EM8 PLOYMENT TAX.—The deduction allowable by reason

9 of subsection (a) shall not be taken into account in

10 determining an individual’s net earnings from self11 employment (within the meaning of section 1402(a))

12 for purposes of chapter 2.

13 ‘‘(g) REPORTS.—The trustee of a FisheRMen Ac14 count shall make such reports regarding such Account to

15 the Secretary and to the person for whose benefit the Ac16 count is maintained with respect to contributions, dis17 tributions, and such other matters as the Secretary may

18 require under regulations. The reports required by this

19 subsection shall be filed at such time and in such manner

20 and furnished to such persons at such time and in such

21 manner as may be required by such regulations.’’.

22 (b) TAX ON EXCESS CONTRIBUTIONS.—

23 (1) Subsection (a) of section 4973 (relating to

24 tax on excess contributions to certain tax-favored ac25 counts and annuities) is amended by striking ‘‘or’’
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1 at the end of paragraph (3), by redesignating para2 graph (4) as paragraph (5), and by inserting after

3 paragraph (3) the following:

4 ‘‘(4) a FisheRMen Account (within the meaning

5 of section 468C(d)), or’’.

6 (2) Section 4973 is amended by adding at the

7 end the following:

8 ‘‘(g) EXCESS CONTRIBUTIONS TO FISHERMEN AC9 COUNTS.—For purposes of this section, in the case of a

10 FisheRMen Account (within the meaning of section

11 468C(d)), the term ‘excess contributions’ means the

12 amount by which the amount contributed for the taxable

13 year to the Account exceeds the amount which may be con14 tributed to the Account under section 468C(b) for such

15 taxable year. For purposes of this subsection, any con16 tribution which is distributed out of the FisheRMen Ac17 count in a distribution to which section 468C(e)(2)(B) ap18 plies shall be treated as an amount not contributed.’’.

19 (3) The section heading for section 4973 is

20 amended to read as follows:
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1 ‘‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN AC2 COUNTS, ANNUITIES, ETC.’’.

3 (4) The table of sections for chapter 43 is

4 amended by striking the item relating to section

5 4973 and inserting the following:

‘‘Sec. 4973 Excess contributions to certain accounts, annuities, etc.’’.

6 (c) TAX ON PROHIBITED TRANSACTIONS.—

7 (1) Subsection (c) of section 4975 (relating to

8 tax on prohibited transactions) is amended by add9 ing at the end the following:

10 ‘‘(6) SPECIAL RULE FOR FISHERMEN AC11 COUNTS.—A person for whose benefit a FisheRMen

12 Account (within the meaning of section 468C(d)) is

13 established shall be exempt from the tax imposed by

14 this section with respect to any transaction con15 cerning such account (which would otherwise be tax16 able under this section) if, with respect to such

17 transaction, the account ceases to be a FisheRMen

18 Account by reason of the application of section

19 468C(f)(3)(A) to such account.’’.

20 (2) Paragraph (1) of section 4975(e) is amend21 ed by redesignating subparagraphs (E) and (F) as

22 subparagraphs (F) and (G), respectively, and by in23 serting after subparagraph (D) the following:
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1 ‘‘(E) a FisheRMen Account described in

2 section 468C(d),’’.

3 (d) FAILURE TO PROVIDE REPORTS ON FISHERMEN

4 ACCOUNTS.—Paragraph (2) of section 6693(a) (relating

5 to failure to provide reports on certain tax-favored ac6 counts or annuities) is amended by redesignating subpara7 graphs (C) and (D) as subparagraphs (D) and (E), re8 spectively, and by inserting after subparagraph (B) the

9 following:

10 ‘‘(C) section 468C(g) (relating to FisheR11 Men Accounts),’’.

12 (e) CLERICAL AMENDMENT.—The table of sections

13 for subpart C of part II of subchapter E of chapter 1 is

14 amended by inserting after the item relating to section

15 468B the following:

‘‘Sec. 468C. Fishing Risk Management Accounts.’’.

16 SECTION 4. EFFECTIVE DATE.

17 The changes made by this Act shall apply to taxable

18 years beginning after December 31, 2000.

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