II

106TH CONGRESS

1ST SESSION S. 1861

To amend the Internal Revenue Code of 1986 to provide comprehensive

tax relief for small family farmers, and for other purposes.

IN THE SENATE OF THE UNITED STATES

NOVEMBER 4, 1999

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 provide

comprehensive tax relief for small family farmers, 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; ETC.

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

5 ‘‘Farmer Tax Relief Act of 1999’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment

9 to, or repeal of, a section or other provision, the reference
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986.

3 (c) TABLE OF CONTENTS.—The table of contents for

4 this Act is as follows:

Sec. 1. Short title; etc.

Sec. 2. Farm and ranch risk management accounts.

Sec. 3. Increase in deduction for health insurance costs of self-employed individuals.

Sec. 4. Increase in unified estate and gift tax credits.

Sec. 5. Inclusion of farmland as part of principal residence.

Sec. 6. Averaging of farm income.

Sec. 7. Exemption for farm income from unincorporated farm businesses from

alternative minimum tax.

Sec. 8. Capital gain realized from transfer of farm property in complete or partial satisfaction of qualified farm indebtedness excluded from

gross income.

Sec. 9. Exclusion of farm rental income in connection with certain lease agreements from net earnings from self-employment.

Sec. 10. Agricultural program improvements.

Sec. 11. Cooperative marketing includes value-added processing through animals.

Sec. 12. Declaratory judgment relief for section 521 cooperatives.

Sec. 13. Increase in threshold amount for cash remuneration for purposes of

payroll tax.

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

6 (a) IN GENERAL.—Subpart C of part II of sub7 chapter E of chapter 1 (relating to taxable year for which

8 deductions taken) is amended by inserting after section

9 468B the following:

10 ‘‘SEC. 468C. FARM AND RANCH RISK MANAGEMENT AC11 COUNTS.

12 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi13 vidual engaged in an eligible farming business, there shall

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

15 paid in cash by the taxpayer during the taxable year to
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1 a Farm and Ranch Risk Management Account (herein2 after referred to as the ‘FARRM Account’).

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

4 may pay into the FARRM Account for any taxable year

5 shall not exceed 20 percent of so much of the taxable in6 come of the taxpayer (determined without regard to this

7 section) which is attributable (determined in the manner

8 applicable under section 1301) to any eligible farming

9 business.

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

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

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

13 which is not a passive activity (within the meaning of sec14 tion 469(c)) of the taxpayer.

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

16 section—

17 ‘‘(1) IN GENERAL.—The term ‘FARRM Ac18 count’ means a trust created or organized in the

19 United States for the exclusive benefit of the tax20 payer, but only if the written governing instrument

21 creating the trust meets the following requirements:

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

23 any taxable year in excess of the amount al24 lowed as a deduction under subsection (a) for

25 such year.
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1 ‘‘(B) The trustee is a bank (as defined in

2 section 408(n)) or another person who dem3 onstrates to the satisfaction of the Secretary

4 that the manner in which such person will ad5 minister the trust will be consistent with the re6 quirements of this section.

7 ‘‘(C) The assets of the trust consist en8 tirely of cash or of obligations which have ade9 quate stated interest (as defined in section

10 1274(c)(2)) and which pay such interest not

11 less often than annually.

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

13 currently to the grantor.

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

15 commingled with other property except in a

16 common trust fund or common investment

17 fund.

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

19 The grantor of a FARRM Account shall be treated

20 for purposes of this title as the owner of such Ac21 count and shall be subject to tax thereon in accord22 ance with subpart E of part I of subchapter J of

23 this chapter (relating to grantors and others treated

24 as substantial owners).

25 ‘‘(e) INCLUSION OF AMOUNTS DISTRIBUTED.—
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1 ‘‘(1) IN GENERAL.—Except as provided in para2 graph (2), there shall be includible in the gross in3 come of the taxpayer for any taxable year—

4 ‘‘(A) any amount distributed from a

5 FARRM Account of the taxpayer during such

6 taxable year, and

7 ‘‘(B) any deemed distribution under—

8 ‘‘(i) subsection (f)(1) (relating to de9 posits not distributed within 5 years),

10 ‘‘(ii) subsection (f)(2) (relating to ces11 sation in eligible farming business), and

12 ‘‘(iii) subparagraph (A) or (B) of sub13 section (f)(3) (relating to prohibited trans14 actions and pledging account as security).

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

16 apply to—

17 ‘‘(A) any distribution to the extent attrib18 utable to income of the Account, and

19 ‘‘(B) the distribution of any contribution

20 paid during a taxable year to a FARRM Ac21 count to the extent that such contribution ex22 ceeds the limitation applicable under subsection

23 (b) if requirements similar to the requirements

24 of section 408(d)(4) are met.
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1 For purposes of subparagraph (A), distributions

2 shall be treated as first attributable to income and

3 then to other amounts.

4 ‘‘(3) EXCLUSION FROM SELF-EMPLOYMENT

5 TAX.—Amounts included in gross income under this

6 subsection shall not be included in determining net

7 earnings from self-employment under section 1402.

8 ‘‘(f) SPECIAL RULES.—

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

10 ARE NOT DISTRIBUTED WITHIN 5 YEARS.—

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

12 taxable year, there is a nonqualified balance in

13 any FARRM Account—

14 ‘‘(i) there shall be deemed distributed

15 from such Account during such taxable

16 year an amount equal to such balance, and

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

18 this chapter for such taxable year shall be

19 increased by 10 percent of such deemed

20 distribution.

21 The preceding sentence shall not apply if an

22 amount equal to such nonqualified balance is

23 distributed from such Account to the taxpayer

24 before the due date (including extensions) for

25 filing the return of tax imposed by this chapter
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1 for such year (or, if earlier, the date the tax2 payer files such return for such year).

3 ‘‘(B) NONQUALIFIED BALANCE.—For pur4 poses of subparagraph (A), the term ‘non5 qualified balance’ means any balance in the Ac6 count on the last day of the taxable year which

7 is attributable to amounts deposited in such Ac8 count before the 4th preceding taxable year.

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

10 this paragraph, distributions from a FARRM

11 Account shall be treated as made from deposits

12 in the order in which such deposits were made,

13 beginning with the earliest deposits. For pur14 poses of the preceding sentence, income of such

15 an Account shall be treated as a deposit made

16 on the date such income is received by the Ac17 count.

18 ‘‘(2) CESSATION IN ELIGIBLE FARMING BUSI19 NESS.—At the close of the first disqualification pe20 riod after a period for which the taxpayer was en21 gaged in an eligible farming business, there shall be

22 deemed distributed from the FARRM Account of the

23 taxpayer an amount equal to the balance in such Ac24 count (if any) at the close of such disqualification

25 period. For purposes of the preceding sentence, the
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1 term ‘disqualification period’ means any period of 2

2 consecutive taxable years for which the taxpayer is

3 not engaged in an eligible farming business.

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

5 to the following rules shall apply for purposes of this

6 section:

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

8 exemption of account where individual engages

9 in prohibited transaction).

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

11 of pledging account as security).

12 ‘‘(C) Section 408(g) (relating to commu13 nity property laws).

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

15 accounts).

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

17 For purposes of this section, a taxpayer shall be

18 deemed to have made a payment to a FARRM Ac19 count on the last day of a taxable year if such pay20 ment is made on account of such taxable year and

is made within 31 21 ⁄2 months after the close of such

22 taxable year.

23 ‘‘(5) INDIVIDUAL.—For purposes of this sec24 tion, the term ‘individual’ shall not include an estate

25 or trust.
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1 ‘‘(g) REPORTS.—The trustee of a FARRM Account

2 shall make such reports regarding such Account to the

3 Secretary and to the person for whose benefit the Account

4 is maintained with respect to contributions, distributions,

5 and such other matters as the Secretary may require

6 under regulations. The reports required by this subsection

7 shall be filed at such time and in such manner and fur8 nished to such persons at such time and in such manner

9 as may be required by such regulations.’’

10 (b) DEDUCTION ALLOWED IN COMPUTING AD11 JUSTED GROSS INCOME.—Subsection (a) of section 62

12 (defining adjusted gross income) is amended by inserting

13 after paragraph (17) the following:

14 ‘‘(18) CONTRIBUTIONS TO FARM AND RANCH

15 RISK MANAGEMENT ACCOUNTS.—The deduction al16 lowed by section 468C(a).’’

17 (c) TAX ON EXCESS CONTRIBUTIONS.—

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

19 tax on excess contributions to certain tax-favored ac20 counts and annuities) is amended by striking ‘‘or’’

21 at the end of paragraph (3), by redesignating para22 graph (4) as paragraph (5), and by inserting after

23 paragraph (3) the following:

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

25 section 468C(d)), or’’.
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1 (2) Section 4973 is amended by adding at the

2 end the following:

3 ‘‘(g) EXCESS CONTRIBUTIONS TO FARRM AC4 COUNTS.—For purposes of this section, in the case of a

5 FARRM Account (within the meaning of section

6 468C(d)), the term ‘excess contributions’ means the

7 amount by which the amount contributed for the taxable

8 year to the Account exceeds the amount which may be con9 tributed to the Account under section 468C(b) for such

10 taxable year. For purposes of this subsection, any con11 tribution which is distributed out of the FARRM Account

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

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

14 (3) The section heading for section 4973 is

15 amended to read as follows:

16 ‘‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN AC17 COUNTS, ANNUITIES, ETC.’’

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

19 amended by striking the item relating to section

20 4973 and inserting the following:

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

etc.’’

21 (d) TAX ON PROHIBITED TRANSACTIONS.—

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

23 tax on prohibited transactions) is amended by add24 ing at the end the following:
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1 ‘‘(6) SPECIAL RULE FOR FARRM ACCOUNTS.—

2 A person for whose benefit a FARRM Account

3 (within the meaning of section 468C(d)) is estab4 lished shall be exempt from the tax imposed by this

5 section with respect to any transaction concerning

6 such account (which would otherwise be taxable

7 under this section) if, with respect to such trans8 action, the account ceases to be a FARRM Account

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

10 to such account.’’

11 (2) Paragraph (1) of section 4975(e) is amend12 ed by redesignating subparagraphs (E) and (F) as

13 subparagraphs (F) and (G), respectively, and by in14 serting after subparagraph (D) the following:

15 ‘‘(E) a FARRM Account described in sec16 tion 468C(d),’’.

17 (e) FAILURE TO PROVIDE REPORTS ON FARRM AC18 COUNTS.—Paragraph (2) of section 6693(a) (relating to

19 failure to provide reports on certain tax-favored accounts

20 or annuities) is amended by redesignating subparagraphs

21 (C) and (D) as subparagraphs (D) and (E), respectively,

22 and by inserting after subparagraph (B) the following:

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

24 Accounts),’’.
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1 (f) CLERICAL AMENDMENT.—The table of sections

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

3 amended by inserting after the item relating to section

4 468B the following:

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

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

6 this section shall apply to taxable years beginning after

7 the date of the enactment of this Act.

8 SEC. 3. INCREASE IN DEDUCTION FOR HEALTH INSURANCE

9 COSTS OF SELF-EMPLOYED INDIVIDUALS.

10 (a) IN GENERAL.—Section 162(l)(1) (relating to spe11 cial rules for health insurance costs of self-employed indi12 viduals) is amended to read as follows:

13 ‘‘(1) ALLOWANCE OF DEDUCTION.—In the case

14 of an individual who is an employee within the

15 meaning of section 401(c)(1), there shall be allowed

16 as a deduction under this section an amount equal

17 to the amount paid during the taxable year for in18 surance which constitutes medical care for the tax19 payer, the taxpayer’s spouse, and dependents.’’

20 (b) CLARIFICATION OF LIMITATIONS ON OTHER COV21 ERAGE.—The first sentence of section 162(l)(2)(B) of the

22 Internal Revenue Code of 1986 is amended to read as fol23 lows: ‘‘Paragraph (1) shall not apply to any taxpayer for

24 any calendar month for which the taxpayer participates

25 in any subsidized health plan maintained by any employer
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1 (other than an employer described in section 401(c)(4))

2 of the taxpayer or the spouse of the taxpayer.’’

3 (c) EFFECTIVE DATE.—The amendments made by

4 this section apply to taxable years beginning after Decem5 ber 31, 1999.

6 SEC. 4. INCREASE IN UNIFIED ESTATE AND GIFT TAX

7 CREDITS.

8 (a) IN GENERAL.—Section 2010(c) (relating to appli9 cable credit amount) is amended to read as follows:

10 ‘‘(c) APPLICABLE CREDIT AMOUNT.—For purposes

11 of this section, the applicable credit amount is the amount

12 of the tentative tax which would be determined under the

13 rate schedule set forth in section 2001(c) if the amount

14 with respect to which such tentative tax is to be computed

15 were the applicable exclusion amount determined in ac16 cordance with the following table:

‘‘In the case of estates of decedents The applicable

dying, and gifts made, during: exclusion amount is:

2000 or thereafter ................................................. $5,000,000.’’

17 (b) EFFECTIVE DATE.—The amendments made by

18 this section shall apply to estates of decedents dying, and

19 gifts made, after December 31, 1999.

20 SEC. 5. INCLUSION OF FARMLAND AS PART OF PRINCIPAL

21 RESIDENCE.

22 (a) IN GENERAL.—Subsection (d) of section 121 (re23 lating to special rules concerning the exclusion of gain
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1 from sale of principal residence) is amended by adding at

2 the end the following:

3 ‘‘(9) FARMLAND.—If, for each of the 5 taxable

4 years preceding the taxable year in which the sale or

5 exchange of a principal residence occurs, amounts

6 were includible in gross income of the taxpayer from

7 a farming business conducted by the taxpayer on

8 real property contiguous to the principal residence,

9 then such real property shall, at the election of the

10 taxpayer, be treated as part of the principal resi11 dence for purposes of this section. For purposes of

12 the preceding sentence, the term ‘contiguous’ means

13 adjacent or adjoining (at 1 or more corners), not

14 taking into account any road right-of-way.’’

15 (b) EFFECTIVE DATE.—The amendment made by

16 this section shall apply to sales and exchanges occurring

17 after the date of the enactment of this Act.

18 SEC. 6. AVERAGING OF FARM INCOME.

19 (a) IN GENERAL.—Section 1301 (relating to aver20 aging of farm income) is amended by redesignating sub21 sections (b) and (c) as subsections (c) and (d), respec22 tively, and by inserting after subsection (a) the following

23 new subsection:

24 ‘‘(b) ELECTION TO TRANSFER FARM INCOME AMONG

25 TAXABLE YEARS.—
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1 ‘‘(1) IN GENERAL.—In lieu of the election

2 under subsection (a) for a taxable year, a taxpayer

3 may elect to increase or decrease taxable income for

4 the taxable year and the 3 previous taxable years by

5 transfering elected farm income from any of such

6 taxable years to any other of such taxable years.

7 ‘‘(2) APPLICATION TO SUBSEQUENT YEARS.—

8 Any adjustment under this subsection for any tax9 able year shall be taken into account in applying this

10 section for any subsequent taxable year.

11 ‘‘(3) INTEREST.—For purposes of applying sec12 tions 6601 and 6611 to returns modified under

13 paragraph (1), the filing date (as defined in section

14 6611(f)(4)(A)) for a returned modified by reason of

15 paragraph (1) shall be the same as the filing date

16 of the return for the current taxable year.’’.

17 (b) CONFORMING AMENDMENTS.—

18 (1) The last sentence of subsection (a) of sec19 tion 1301 is amended by striking ‘‘section’’ the first

20 place it appears and inserting ‘‘subsection’’.

21 (2) Clause (ii) of section 1301(b)(1)(A) is

22 amended by inserting ‘‘or (b)’’ after ‘‘subsection

23 (a)’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1999.

4 SEC. 7. EXEMPTION FOR FARM INCOME FROM UNINCOR5 PORATED FARM BUSINESSES FROM ALTER6 NATIVE MINIMUM TAX.

7 (a) IN GENERAL.—Section 55 (relating to alternative

8 minimum tax imposed) is amended by adding at the end

9 the following:

10 ‘‘(f) EXEMPTION FOR UNINCORPORATED FARMING

11 BUSINESS INCOME.—

12 ‘‘(1) IN GENERAL.—In the case of a taxpayer

13 (other than a corporation) described in paragraph

14 (2), income from a farming business engaged in by

15 the taxpayer, and deductions relating to the produc16 tion of such income, shall not be taken into account

17 in determining alternative minimum taxable income

18 for the taxable year.

19 ‘‘(2) GROSS RECEIPTS TEST.—A taxpayer is de20 scribed in this paragraph if the gross receipts of the

21 taxpayer attributable to such farming business—

22 ‘‘(A) meet the $5,000,000 gross receipts

23 test of section 448(c) for the first taxable year

24 of the taxpayer beginning after December 31,

25 1999, and
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1 ‘‘(B) would meet such test for the taxable

2 year and each of the prior taxable years begin3 ning after such first taxable year if such test

4 were applied by substituting ‘$7,500,000’ for

5 ‘$5,000,000’.

6 ‘‘(3) PROSPECTIVE APPLICATION OF MINIMUM

7 TAX IF INCOME FROM A FARMING BUSINESS CEASES

8 TO BE SMALL.—In the case of a taxpayer whose in9 come from a farming business is not taken into ac10 count for any prior taxable year by reason of para11 graph (1), the application of this part for taxable

12 years beginning with the first taxable year for which

13 farming income of the taxpayer is so taken into ac14 count shall be determined in accordance with rules

15 similar to the rules of subparagraphs (A) through

16 (G) of subsection (e)(2).

17 ‘‘(4) FARMING BUSINESS.—For purposes of this

18 subsection, the term ‘farming business’ has the

19 meaning given such term by section 263A(e)(4).

20 ‘‘(5) AGGREGATION RULES.—For purposes of

21 determining gross receipts under paragraph (2)—

22 ‘‘(A) all related persons engaged in a farm23 ing business shall be treated as 1 person, and

24 ‘‘(B) a person is related to another person

25 if the related person bears a relationship to
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1 such person specified in section 147(a)(2) or

2 the related person and such person are engaged

3 in trades or businesses under common control

4 (within the meaning of subsections (a) and (b)

5 of section 52).

6 For purposes of the preceding sentence, in applying

7 section 267(b) or 707(b)(1) by reason of section

8 147(a)(2)(A), ‘10 percent’ shall be substituted for

9 ‘50 percent’.’’

10 (b) EFFECTIVE DATE.—The amendment made by

11 this section shall apply to taxable years beginning after

12 December 31, 1999.

13 SEC. 8. CAPITAL GAIN REALIZED FROM TRANSFER OF

14 FARM PROPERTY IN COMPLETE OR PARTIAL

15 SATISFACTION OF QUALIFIED FARM INDEBT16 EDNESS EXCLUDED FROM GROSS INCOME.

17 (a) IN GENERAL.—Part III of subchapter B of chap18 ter 1 (relating to items specifically excluded from gross

19 income) is amended by redesignating section 139 as sec20 tion 140 and by inserting after section 138 the following

21 new section:
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1 ‘‘SEC. 139. CAPITAL GAIN REALIZED FROM TRANSFER OF

2 FARM PROPERTY IN COMPLETE OR PARTIAL

3 SATISFACTION OF QUALIFIED FARM INDEBT4 EDNESS.

5 ‘‘(a) IN GENERAL.—Gross income of any taxpayer

6 described in subsection (d) does not include so much of

7 the gain from the transfer of farm property in complete

8 or partial satisfaction of qualified farm indebtedness as

9 does not exceed $350,000.

10 ‘‘(b) PRIOR GAINS AND DISCHARGES OF INDEBTED11 NESS TAKEN INTO ACCOUNT.—

12 ‘‘(1) IN GENERAL.—If, for any prior year—

13 ‘‘(A) gain from the transfer of farm prop14 erty in complete or partial satisfaction of quali15 fied farm indebtedness, or

16 ‘‘(B) a discharge of such indebtedness,

17 is excluded from the taxpayer’s gross income under

18 subsection (a) of this section or section 108(g), re19 spectively, subsection (a) of this section shall be ap20 plied for the taxable year with respect to such gain

21 by reducing the dollar amount contained in such

22 subsection by such excluded prior year gains and

23 discharges.

24 ‘‘(2) CURRENT YEAR COORDINATION WITH SEC25 TION 108.—Subsection (a) of this section shall be ap26 plied for the taxable year with respect to any gain
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1 by reducing the dollar amount contained in such

2 subsection (after any reduction under paragraph

3 (1)) by any amount excluded from gross income

4 under section 108 for such year.

5 ‘‘(c) REDUCTION OF TAX ATTRIBUTES.—

6 ‘‘(1) IN GENERAL.—The amount excluded from

7 gross income under subsection (a) shall be applied to

8 reduce the tax attributes described under section

9 108(b)(2).

10 ‘‘(2) COORDINATION WITH SECTION 108.—For

11 purposes of this subsection, the amount of tax at12 tributes shall be determined after any reduction

13 under section 108(b) by reason of amounts excluded

14 from gross income under section 108(a)(1).

15 ‘‘(d) TAXPAYER DESCRIBED IN THIS SUBSECTION.—

16 ‘‘(1) IN GENERAL.—A taxpayer is described in

17 this subsection if—

18 ‘‘(A) such taxpayer’s modified adjusted

19 gross income for the taxable year in which the

20 transfer of farm property in complete or partial

21 satisfaction of qualified farm indebtedness oc22 curs is less than 100 percent of the national

23 median adjusted gross income for such year,

24 ‘‘(B) more than 50 percent of the gross re25 ceipts of the taxpayer for 6 of the 10 taxable
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1 years preceding such taxable year are attrib2 utable to—

3 ‘‘(i)(I) the trade or business of farm4 ing (within the meaning of section

5 2032A(e)(5)), or

6 ‘‘(II) the sale or lease of assets used

7 in such trade or business, or

8 ‘‘(ii) the activities described in both

9 subclauses (I) and (II) of clause (i),

10 ‘‘(C) such taxpayer materially participates

11 (within the meaning of section 2032A(e)(6)) in

12 the trade or business described in subparagraph

13 (B)(i)(I), and

14 ‘‘(D) equity in all property held by the tax15 payer after such transfer is less than the great16 er of —

17 ‘‘(i) $25,000, or

18 ‘‘(ii) 150 percent of the excess (if any)

19 of—

20 ‘‘(I) the tax imposed by this

21 chapter determined as if this section

22 and section 108 did not apply to the

23 transfer, over

24 ‘‘(II) the tax imposed by this

25 chapter determined with regard to
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1 this section and section 108 (if appli2 cable).

3 ‘‘(2) MODIFIED ADJUSTED GROSS INCOME.—

4 For purposes of this subsection, the term ‘modified

5 adjusted gross income’ means adjusted gross

6 income—

7 ‘‘(A) determined with regard to this sec8 tion and section 108, and

9 ‘‘(B) increased by the amount of interest

10 received or accrued by the taxpayer during the

11 taxable year which is exempt from tax.

12 ‘‘(3) EQUITY.—For purposes of this subsection,

13 the term ‘equity’ means, with respect to any prop14 erty, an amount equal to—

15 ‘‘(A) the fair market value of such prop16 erty, minus

17 ‘‘(B) any indebtedness relating to such

18 property.

19 ‘‘(e) FARM PROPERTY.—For purposes of this section,

20 the term ‘farm property’ means real and personal property

21 used by the taxpayer in the trade or business of farming

22 (within the meaning of section 2032A(e)(5)).

23 ‘‘(f) QUALIFIED FARM INDEBTEDNESS.—For pur24 poses of this section, indebtedness of a taxpayer shall be

25 treated as qualified farm indebtedness if such indebted-
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1 ness was incurred directly in connection with the operation

2 by the taxpayer of the trade or business of farming (within

3 the meaning of section 2032A(e)(5)).’’

4 (b) CLERICAL AMENDMENT.—The table of sections

5 for part III of subchapter B of chapter 1 is amended by

6 striking the item relating to section 139 and inserting the

7 following:

‘‘Sec. 139. Capital gain realized from transfer of farm property

in complete or partial satisfaction of qualified farm

indebtedness.

‘‘Sec. 140. Cross references to other Acts.’’.

8 (c) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to transfers occurring after Decem10 ber 31, 1999, in taxable years ending after such date.

11 SEC. 9. EXCLUSION OF FARM RENTAL INCOME IN CONNEC12 TION WITH CERTAIN LEASE AGREEMENTS

13 FROM NET EARNINGS FROM SELF-EMPLOY14 MENT.

15 (a) IN GENERAL.—Section 1402(a)(1)(A) (relating

16 to net earnings from self-employment) is amended by

17 striking ‘‘an arrangement’’ and inserting ‘‘a lease agree18 ment’’.

19 (b) AMENDMENT TO SOCIAL SECURITY ACT.—Sec20 tion 211(a)(1)(A) of the Social Security Act (42 U.S.C.

21 411(a)(1)(A)) is amended by striking ‘‘an arrangement’’

22 and inserting ‘‘a lease agreement’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to income received in taxable years

3 beginning after December 31, 1999.

4 SEC. 10. AGRICULTURAL PROGRAM IMPROVEMENTS.

5 (a) VALUE-ADDED AGRICULTURAL PRODUCTS.—

6 Section 310B of the Consolidated Farm and Rural Devel7 opment Act (7 U.S.C. 1932) is amended by adding at the

8 end the following:

9 ‘‘(h) VALUE-ADDED AGRICULTURAL PRODUCTS.—In

10 approving applications for loans and grants authorized

11 under this section, section 306(a)(11), and other applica12 ble provisions of this title (as determined by the Sec13 retary), the Secretary shall provide a high priority to

14 projects that encourage the creation of farmer-owned fa15 cilities that process value-added agricultural products.’’.

16 (b) TECHNICAL ASSISTANCE.—Section 793(c)(1) of

17 the Federal Agriculture Improvement and Reform Act of

18 1996 (7 U.S.C. 2204f(c)(1)) is amended by adding at the

19 end the following:

20 ‘‘(E) TECHNICAL ASSISTANCE.—The Sec21 retary may use funds in the Account to provide

22 technical assistance to carry out any rural de23 velopment activity for which funds may be used

24 under this paragraph.’’.
25

•S 1861 IS

1 (c) EXTENSION PROGRAMS FOR SMALL- AND ME2 DIUM-SIZED FARMING OPERATIONS.—Section 502(d) of

3 the Rural Development Act of 1972 (7 U.S.C. 2662(d))

4 is amended—

5 (1) by inserting before ‘‘Small farm’’ the fol6 lowing:

7 ‘‘(1) IN GENERAL.—’’; and

8 (2) by adding at the end the following:

9 ‘‘(2) MARKET DEVELOPMENT EDUCATION AND

10 TECHNICAL ASSISTANCE.—To ensure the continued

11 viability of small- and medium-sized farming oper12 ations, extension programs shall, to the maximum

13 extent practicable, provide education and technical

14 assistance to owners and operators of small- and me15 dium-sized farming operations that is directed

16 toward—

17 ‘‘(A) expanding marketing opportunities

18 for the farming operations through activities

19 such as direct farm-to-consumer markets, local

20 value-added processing, and farmer-owned co21 operatives; and

22 ‘‘(B) providing entrepreneurial training

23 and development assistance relating to natural

24 resource-based activities.’’.
26

•S 1861 IS

1 SEC. 11. COOPERATIVE MARKETING INCLUDES VALUE2 ADDED PROCESSING THROUGH ANIMALS.

3 (a) IN GENERAL.—Section 1388 (relating to defini4 tions and special rules) is amended by adding at the end

5 the following:

6 ‘‘(k) COOPERATIVE MARKETING INCLUDES VALUE7 ADDED PROCESSING THROUGH ANIMALS.—For purposes

8 of section 521 and this subchapter, the term ‘marketing

9 the products of members or other producers’ includes feed10 ing the products of members or other producers to cattle,

11 hogs, fish, chickens, or other animals and selling the re12 sulting animals or animal products.’’

13 (b) EFFECTIVE DATE.—The amendment made by

14 this section shall apply to taxable years beginning after

15 the date of the enactment of this Act.

16 SEC. 12. DECLARATORY JUDGMENT RELIEF FOR SECTION

17 521 COOPERATIVES.

18 (a) IN GENERAL.—Subsection (a)(1) of section 7428

19 (relating to declaratory judgments relating to status and

20 classification of organizations under section 501(c)(3),

21 etc.) is amended by striking ‘‘or’’ at the end of subpara22 graph (B) and by adding at the end the following:

23 ‘‘(D) with respect to the initial qualifica24 tion or continuing qualification of a cooperative

25 (described in section 521(b)) which is exempt

26 from tax under section 521(a), or’’.
27

•S 1861 IS

1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply with respect to pleadings filed after

3 the date of the enactment of this Act but only with respect

4 to determinations (or requests for determinations) made

5 after January 1, 1999.

6 SEC. 13. INCREASE IN THRESHOLD AMOUNT FOR CASH RE7 MUNERATION FOR PURPOSES OF PAYROLL

8 TAX.

9 (a) IN GENERAL.—Paragraph (8)(B) of section

10 3121(a) (relating to definition of wages) is amended—

11 (1) in clause (i), by striking ‘‘$150’’ and insert12 ing ‘‘$3,000’’, and

13 (2) in clause (ii), by striking ‘‘$2,500’’ and in14 serting ‘‘$15,000’’.

15 (b) CONFORMING AMENDMENT.—The second sen16 tence of section 3102(a) is amended by striking ‘‘$150’’

17 and inserting ‘‘$3,000’’.

18 (c) EFFECTIVE DATE.—The amendments made by

19 this section shall apply to amounts paid in taxable years

20 beginning after December 31, 1999.

Æ