II

106TH CONGRESS

2D SESSION S. 2422

To amend the Internal Revenue Code of 1986 to provide tax incentives

for farm relief and economic development, and for other purposes.

IN THE SENATE OF THE UNITED STATES

APRIL 13, 2000

Mr. CONRAD 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

tax incentives for farm relief and economic development,

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 ‘‘Farm Relief and Economic Development Act of 2000’’.

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. Lease agreement relating to exclusion of certain farm rental income

from net earnings from self-employment.

Sec. 4. Treatment of Conservation Reserve Program payments as rentals from

real estate.

Sec. 5. Exclusion of gain from sale of certain farmland.

Sec. 6. Exemption of small issue agriculture bonds from State volume cap.

Sec. 7. Capital gain realized from transfer of farm property in complete or partial satisfaction of qualified farm indebtedness excluded from

gross income.

Sec. 8. Exclusion of discharge of qualified farm indebtedness from gross income

increased for certain solvent farmers.

Sec. 9. Net operating loss of farmers.

Sec. 10. Certain cash rentals of farmland not to cause recapture of special estate tax valuation.

Sec. 11. Declaratory judgment remedy relating to status and classification of

farmers’ cooperatives.

Sec. 12. Income averaging for farmers not to increase alternative minimum tax

liability.

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 ‘‘(f) SPECIAL RULES.—

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

6 ARE NOT DISTRIBUTED WITHIN 5 YEARS.—

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

8 taxable year, there is a nonqualified balance in

9 any FARRM Account—

10 ‘‘(i) there shall be deemed distributed

11 from such Account during such taxable

12 year an amount equal to such balance, and

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

14 this chapter for such taxable year shall be

15 increased by 10 percent of such deemed

16 distribution.

17 The preceding sentence shall not apply if an

18 amount equal to such nonqualified balance is

19 distributed from such Account to the taxpayer

20 before the due date (including extensions) for

21 filing the return of tax imposed by this chapter

22 for such year (or, if earlier, the date the tax23 payer files such return for such year).

24 ‘‘(B) NONQUALIFIED BALANCE.—For pur25 poses of subparagraph (A), the term ‘non-
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1 qualified balance’ means any balance in the Ac2 count on the last day of the taxable year which

3 is attributable to amounts deposited in such Ac4 count before the 4th preceding taxable year.

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

6 this paragraph, distributions from a FARRM

7 Account (other than distributions of current in8 come) shall be treated as made from deposits in

9 the order in which such deposits were made, be10 ginning with the earliest deposits.

11 ‘‘(2) CESSATION IN ELIGIBLE FARMING BUSI12 NESS.—At the close of the first disqualification pe13 riod after a period for which the taxpayer was en14 gaged in an eligible farming business, there shall be

15 deemed distributed from the FARRM Account of the

16 taxpayer an amount equal to the balance in such Ac17 count (if any) at the close of such disqualification

18 period. For purposes of the preceding sentence, the

19 term ‘disqualification period’ means any period of 2

20 consecutive taxable years for which the taxpayer is

21 not engaged in an eligible farming business.

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

23 to the following rules shall apply for purposes of this

24 section:
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1 ‘‘(A) Section 220(f)(8) (relating to treat2 ment on death).

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

4 exemption of account where individual engages

5 in prohibited transaction).

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

7 of pledging account as security).

8 ‘‘(D) Section 408(g) (relating to commu9 nity property laws).

10 ‘‘(E) Section 408(h) (relating to custodial

11 accounts).

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

13 For purposes of this section, a taxpayer shall be

14 deemed to have made a payment to a FARRM Ac15 count on the last day of a taxable year if such pay16 ment is made on account of such taxable year and

17 is made on or before the due date (without regard

18 to extensions) for filing the return of tax for such

19 taxable year.

20 ‘‘(5) INDIVIDUAL.—For purposes of this sec21 tion, the term ‘individual’ shall not include an estate

22 or trust.

23 ‘‘(6) DEDUCTION NOT ALLOWED FOR SELF-EM24 PLOYMENT TAX.—The deduction allowable by reason

25 of subsection (a) shall not be taken into account in
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1 determining an individual’s net earnings from self2 employment (within the meaning of section 1402(a))

3 for purposes of chapter 2.

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

5 shall make such reports regarding such Account to the

6 Secretary and to the person for whose benefit the Account

7 is maintained with respect to contributions, distributions,

8 and such other matters as the Secretary may require

9 under regulations. The reports required by this subsection

10 shall be filed at such time and in such manner and fur11 nished to such persons at such time and in such manner

12 as may be required by such regulations.’’

13 (b) TAX ON EXCESS CONTRIBUTIONS.—

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

15 tax on excess contributions to certain tax-favored ac16 counts and annuities) is amended by striking ‘‘or’’

17 at the end of paragraph (3), by redesignating para18 graph (4) as paragraph (5), and by inserting after

19 paragraph (3) the following:

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

21 section 468C(d)), or’’.

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

23 end the following:

24 ‘‘(g) EXCESS CONTRIBUTIONS TO FARRM AC25 COUNTS.—For purposes of this section, in the case of a
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1 FARRM Account (within the meaning of section

2 468C(d)), the term ‘excess contributions’ means the

3 amount by which the amount contributed for the taxable

4 year to the Account exceeds the amount which may be con5 tributed to the Account under section 468C(b) for such

6 taxable year. For purposes of this subsection, any con7 tribution which is distributed out of the FARRM Account

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

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

10 (c) TAX ON PROHIBITED TRANSACTIONS.—

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

12 tax on prohibited transactions) is amended by add13 ing at the end the following:

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

15 A person for whose benefit a FARRM Account

16 (within the meaning of section 468C(d)) is estab17 lished shall be exempt from the tax imposed by this

18 section with respect to any transaction concerning

19 such account (which would otherwise be taxable

20 under this section) if, with respect to such trans21 action, the account ceases to be a FARRM Account

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

23 to such account.’’

24 (2) Paragraph (1) of section 4975(e) is amend25 ed by redesignating subparagraphs (E) and (F) as
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1 subparagraphs (F) and (G), respectively, and by in2 serting after subparagraph (D) the following:

3 ‘‘(E) a FARRM Account described in sec4 tion 468C(d),’’.

5 (d) FAILURE TO PROVIDE REPORTS ON FARRM AC6 COUNTS.—Paragraph (2) of section 6693(a) (relating to

7 failure to provide reports on certain tax-favored accounts

8 or annuities) is amended by redesignating subparagraphs

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

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

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

12 Accounts),’’.

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

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

15 amended by inserting after the item relating to section

16 468B the following:

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

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

18 this section shall apply to taxable years beginning after

19 December 31, 2000.

20 SEC. 3. LEASE AGREEMENT RELATING TO EXCLUSION OF

21 CERTAIN FARM RENTAL INCOME FROM NET

22 EARNINGS FROM SELF-EMPLOYMENT.

23 (a) INTERNAL REVENUE CODE.—Section

24 1402(a)(1)(A) (relating to net earnings from self-employ-
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1 ment) is amended by striking ‘‘an arrangement’’ and in2 serting ‘‘a lease agreement’’.

3 (b) SOCIAL SECURITY ACT.—Section 211(a)(1)(A) of

4 the Social Security Act is amended by striking ‘‘an ar5 rangement’’ and inserting ‘‘a lease agreement’’.

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

7 this section shall apply to taxable years beginning after

8 December 31, 2000.

9 SEC. 4. TREATMENT OF CONSERVATION RESERVE PRO10 GRAM PAYMENTS AS RENTALS FROM REAL

11 ESTATE.

12 (a) IN GENERAL.—Section 1402(a)(1) of the Internal

13 Revenue Code of 1986 (defining net earnings from self14 employment) is amended by inserting ‘‘and including pay15 ments under section 1233(2) of the Food Security Act of

16 1985 (16 U.S.C. 3833(2))’’ after ‘‘crop shares’’.

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

18 this section shall apply to payments made before, on, or

19 after the date of the enactment of this Act.

20 SEC. 5. EXCLUSION OF GAIN FROM SALE OF CERTAIN

21 FARMLAND.

22 (a) IN GENERAL.—Part III of subchapter B of chap23 ter 1 (relating to items specifically excluded from gross

24 income) is amended by adding after section 121 the fol25 lowing new section:
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1 ‘‘SEC. 121A. EXCLUSION OF GAIN FROM SALE OF QUALIFIED

2 FARM PROPERTY.

3 ‘‘(a) EXCLUSION.—In the case of a natural person,

4 gross income shall not include gain from the sale or ex5 change of qualified farm property, to the extent such prop6 erty does not exceed 160 acres.

7 ‘‘(b) LIMITATION ON AMOUNT OF EXCLUSION.—

8 ‘‘(1) IN GENERAL.—The amount of gain ex9 cluded from gross income under subsection (a) with

10 respect to any taxable year shall not exceed

11 $500,000 ($250,000 in the case of a married indi12 vidual filing a separate return), reduced by the ag13 gregate amount of gain excluded under subsection

14 (a) for all preceding taxable years.

15 ‘‘(2) SPECIAL RULE FOR JOINT RETURNS.—The

16 amount of the exclusion under subsection (a) on a

17 joint return for any taxable year shall be allocated

18 equally between the spouses for purposes of applying

19 the limitation under paragraph (1) for any suc20 ceeding taxable year.

21 ‘‘(c) QUALIFIED FARM PROPERTY.—

22 ‘‘(1) QUALIFIED FARM PROPERTY.—For pur23 poses of this section, the term ‘qualified farm prop24 erty’ means real property located in the United

25 States if—
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1 ‘‘(A) during periods aggregating 3 years or

2 more of the 5-year period ending on the date of

3 the sale or exchange of such real property—

4 ‘‘(i) such real property was used as a

5 farm for farming purposes by the taxpayer

6 or a member of the family of the taxpayer,

7 and

8 ‘‘(ii) there was material participation

9 by the taxpayer (or such a member) in the

10 operation of the farm, and

11 ‘‘(B) such real property is located contig12 uous to the principal residence of the taxpayer

13 which is sold or exchanged in the same taxable

14 year as such real property.

15 ‘‘(2) DEFINITIONS.—For purposes of this sub16 section, the terms ‘member of the family’, ‘farm’,

17 and ‘farming purposes’ have the respective meanings

18 given such terms by paragraphs (2), (4), and (5) of

19 section 2032A(e).

20 ‘‘(3) SPECIAL RULES.—For purposes of this

21 section, rules similar to the rules of paragraphs (4)

22 and (5) of section 2032A(b) and paragraphs (3) and

23 (6) of section 2032A(e) shall apply.
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1 ‘‘(d) OTHER RULES.—For purposes of this section,

2 rules similar to the rules of subsection (e) and subsection

3 (f) of section 121 shall apply.’’

4 (b) CONFORMING AMENDMENT.—The table of sec5 tions for part III of subchapter B of chapter 1 is amended

6 by adding after the item relating to section 121 the fol7 lowing new item:

‘‘Sec. 121A. Exclusion of gain from sale of qualified farm property.’’

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

9 this section shall apply to any sale or exchange after De10 cember 31, 2000, in taxable years ending after such date.

11 SEC. 6. EXEMPTION OF SMALL ISSUE AGRICULTURE BONDS

12 FROM STATE VOLUME CAP.

13 (a) IN GENERAL.—Section 146(g) (relating to excep14 tion for certain bonds) is amended by striking ‘‘and’’ at

15 the end of paragraph (3), by striking the period at the

16 end of paragraph (4) and inserting ‘‘, and’’, and by insert17 ing after paragraph (4) the following:

18 ‘‘(5) any small issue bond described in section

19 144(a)(12)(B)(ii).’’

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

21 this section shall apply to bonds issued after December

22 31, 2000.
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1 SEC. 7. CAPITAL GAIN REALIZED FROM TRANSFER OF

2 FARM PROPERTY IN COMPLETE OR PARTIAL

3 SATISFACTION OF QUALIFIED FARM INDEBT4 EDNESS EXCLUDED FROM GROSS INCOME.

5 (a) IN GENERAL.—Part III of subchapter B of chap6 ter 1 (relating to items specifically excluded from gross

7 income) is amended by redesignating section 139 as sec8 tion 140 and by inserting after section 138 the following

9 new section:

10 ‘‘SEC. 139. CAPITAL GAIN REALIZED FROM TRANSFER OF

11 FARM PROPERTY IN COMPLETE OR PARTIAL

12 SATISFACTION OF QUALIFIED FARM INDEBT13 EDNESS.

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

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

16 the gain from the transfer of farm property in complete

17 or partial satisfaction of qualified farm indebtedness as

18 does not exceed $300,000.

19 ‘‘(b) PRIOR GAINS AND DISCHARGES OF INDEBTED20 NESS TAKEN INTO ACCOUNT.—

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

22 ‘‘(A) gain from the transfer of farm prop23 erty in complete or partial satisfaction of quali24 fied farm indebtedness, or

25 ‘‘(B) a discharge of such indebtedness,
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1 is excluded from the taxpayer’s gross income under

2 subsection (a) of this section or section 108(g), re3 spectively, subsection (a) of this section shall be ap4 plied for the taxable year with respect to such gain

5 by reducing the dollar amount contained in such

6 subsection by the such excluded prior year gains and

7 discharges.

8 ‘‘(2) CURRENT YEAR COORDINATION WITH SEC9 TION 108.—Subsection (a) of this section shall be ap10 plied for the taxable year with respect to any gain

11 by reducing the dollar amount contained in such

12 subsection (after any reduction under paragraph

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

14 under section 108 for such year.

15 ‘‘(c) REDUCTION OF TAX ATTRIBUTES.—

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

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

18 reduce the tax attributes described under section

19 108(b)(2).

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

21 purposes of this subsection, the amount of tax at22 tributes shall be determined after any reduction

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

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

25 ‘‘(d) TAXPAYER DESCRIBED IN THIS SUBSECTION.—
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1 ‘‘(1) IN GENERAL.—A taxpayer is described in

2 this subsection if—

3 ‘‘(A) more than 50 percent of the gross re4 ceipts of the taxpayer for 6 of the 10 taxable

5 years preceding such taxable year are attrib6 utable to—

7 ‘‘(i) the trade or business of farming

8 (within the meaning of section

9 2032A(e)(5)), or

10 ‘‘(ii) the sale or lease of assets used in

11 such trade or business, or

12 ‘‘(iii) both, and

13 ‘‘(B) equity in all property held by the tax14 payer after such transfer is less than the great15 er of —

16 ‘‘(i) $25,000, or

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

18 of—

19 ‘‘(I) the tax imposed by this

20 chapter determined as if this section

21 and section 108 did not apply to the

22 transfer, over

23 ‘‘(II) the tax imposed by this

24 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 all property

14 held by the taxpayer, 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-
20

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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)) and when such tax4 payer materially participated in such trade or business

5 (within the meaning of section 2032A(e)(6)).

6 ‘‘(g) APPLICATION WITH RECAPTURE PROVISIONS.—

7 In the case of any gain from the transfer of farm property

8 in complete or partial satisfaction of qualified farm indebt9 edness which is treated as ordinary income under section

10 1245, 1250, 1252, or 1255, subsection (a) shall be applied

11 for the taxable year by first reducing the dollar amount

12 contained in such subsection by such gain.’’

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

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

15 striking out the item relating to section 139 and inserting

16 in lieu thereof the following new items:

‘‘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.’’

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

18 this section shall apply to transfers occurring after Decem19 ber 31, 2000, in taxable years ending after such date.

20 SEC. 8. EXCLUSION OF DISCHARGE OF QUALIFIED FARM

21 INDEBTEDNESS FROM GROSS INCOME IN22 CREASED FOR CERTAIN SOLVENT FARMERS.

23 (a) IN GENERAL.—Section 108(g) (relating to special

24 rules for discharge of qualified farm indebtedness) is
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1 amended by adding at the end thereof the following new

2 paragraph:

3 ‘‘(4) SPECIAL LIMITATIONS FOR CERTAIN

4 FARMERS.—

5 ‘‘(A) IN GENERAL.—With respect to a tax6 payer who is described in subparagraph (C) of

7 this paragraph and who elects the application of

8 this paragraph—

9 ‘‘(i) the amount excluded under sub10 paragraph (C) of subsection (a)(1) shall

11 not exceed $300,000, and

12 ‘‘(ii) paragraph (2) of this subsection

13 shall be applied by amending such para14 graph to read as follows: ‘For purposes of

15 this section, indebtedness of a taxpayer

16 shall be treated as qualified farm indebted17 ness if such indebtedness was incurred di18 rectly in connection with the operation by

19 the taxpayer of the trade or business of

20 farming and when such taxpayer materially

21 participated in such trade or business

22 (within the meaning of section

23 2032A(e)(6)).’
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1 ‘‘(B) PRIOR DISCHARGES OF INDEBTED2 NESS AND GAINS TAKEN INTO ACCOUNT.—If for

3 any prior year—

4 ‘‘(i) a discharge of qualified farm in5 debtedness, or

6 ‘‘(ii) gain from the transfer of farm

7 property in complete or partial satisfaction

8 of such indebtedness,

9 is excluded from the taxpayer’s gross income

10 under this subsection or section 139, respec11 tively, subparagraph (A) shall be applied for the

12 taxable year with respect to such discharge by

13 reducing the dollar amount contained in such

14 subparagraph by the such excluded prior year

15 discharges and gains.

16 ‘‘(C) TAXPAYER DESCRIBED IN THIS SUB17 PARAGRAPH.—A taxpayer is described in this

18 subparagraph if—

19 ‘‘(i) more than 50 percent of the gross

20 receipts of the taxpayer for 6 of the 10

21 taxable years preceding such taxable year

22 are attributable to—

23 ‘‘(I) the trade or business of

24 farming (within the meaning of sec25 tion 2032A(e)(5)), or
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1 ‘‘(II) the sale or lease of assets

2 used in such trade or business, or

3 ‘‘(III) both,

4 ‘‘(ii) the indebtedness of the taxpayer

5 both before and after such discharge is

6 equal to 70 percent or more of the fair

7 market value in all property held by such

8 taxpayer, and

9 ‘‘(iii) equity in all property held by the

10 taxpayer after such discharge is less than

11 the greater of—

12 ‘‘(I) $25,000, or

13 ‘‘(II) 150 percent of the excess

14 (if any) of the tax imposed by this

15 chapter determined as if this section

16 and section 139 did not apply to the

17 transfer, over the tax imposed by this

18 chapter determined with regard to

19 this section and section 139 (if appli20 cable).

21 ‘‘(D) DEFINITIONS.—For purposes of this

22 paragraph—

23 ‘‘(i) FARM PROPERTY.—The term

24 ‘farm property’ means real and personal

25 property used by the taxpayer in the trade
24

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1 or business of farming (within the meaning

2 of section 2032A(e)(5)).

3 ‘‘(ii) MODIFIED ADJUSTED GROSS IN4 COME.—The term ‘modified adjusted gross

5 income’ means adjusted gross income—

6 ‘‘(I) determined with regard to

7 this section and section 139, and

8 ‘‘(II) increased by the amount of

9 interest received or accrued by the

10 taxpayer during the taxable year

11 which is exempt from tax.

12 ‘‘(iii) EQUITY.—The term ‘equity’

13 means, with respect to any property, an

14 amount equal to—

15 ‘‘(I) the fair market value of such

16 property, minus

17 ‘‘(II) any indebtedness relating to

18 such property.’’

19 (b) CONFORMING AMENDMENT.—Subparagraph (A)

20 of section 108(g)(3) is amended by striking out ‘‘The

21 amount’’ and inserting in lieu thereof ‘‘Except as provided

22 in paragraph (4), the amount’’.

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

24 this section shall apply to any sale or exchange occurring
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1 after December 31, 2000, in taxable years ending after

2 such date.

3 SEC. 9. NET OPERATING LOSS OF FARMERS.

4 (a) INCREASE IN CARRYBACK YEARS.—Paragraph

5 (1) of section 172(b) (relating to net operating loss

6 carrybacks and carryforwards) is amended by adding at

7 the end the following new subparagraph:

8 ‘‘(H) FARMING LOSSES.—Subparagraph

9 (A) shall be applied—

10 ‘‘(i) in the matter preceding clause (i),

11 by substituting ‘any taxable year beginning

12 with the 3rd taxable year after the taxable

13 year of such loss’ for ‘any taxable year’,

14 and

15 ‘‘(ii) in clause (i), by substituting ‘10

16 years’ for ‘2 years’,

17 with respect to the portion of the net operating

18 loss of an eligible taxpayer (as defined in sub19 section (i)) for any taxable year beginning after

20 December 31, 1997, and ending before January

21 1, 2001, which is a farming loss (as so defined)

22 with respect to the taxpayer.’’

23 (b) DEFINITIONS AND RULES RELATING TO FARM24 ING LOSSES.—Section 172 is amended by redesignating
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1 subsection (j) as subsection (k) and inserting after sub2 section (i) the following new subsection:

3 ‘‘(j) DEFINITIONS AND RULES RELATING TO FARM4 ING LOSSES.—For purposes of this section—

5 ‘‘(1) FARMING LOSS.—

6 ‘‘(A) IN GENERAL.—The term ‘farming

7 loss’ means the lesser of—

8 ‘‘(i) the net operating loss of the tax9 payer for the taxable year, or

10 ‘‘(ii) the net operating loss of the tax11 payer for the taxable year determined by

12 only taking into account items of income

13 and deduction attributable to 1 or more

14 qualified farming business of the taxpayer.

15 ‘‘(B) DOLLAR LIMITATION.—

16 ‘‘(i) IN GENERAL.—The farming loss

17 of taxpayer for any taxable year shall not

18 exceed $200,000.

19 ‘‘(ii) AGGREGATION RULES.—

20 ‘‘(I) IN GENERAL.—All persons

21 treated as 1 employer under sub22 sections (a) or (b) of section 52 shall

23 be treated as 1 person.

24 ‘‘(II) PASS-THRU ENTITY.—In

25 the case of a partnership, trust, or
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1 other pass-thru entity, the limitation

2 shall be applied at both the entity and

3 the owner level.

4 ‘‘(III) OWNER.—The limitation

5 shall be reduced by the amount of

6 farming loss determined for a cor7 poration for which the taxpayer is a

8 50 percent owner in the taxable year

9 of the corporation ending in the tax10 able year of the taxpayer owner.

11 ‘‘(2) ELIGIBLE TAXPAYER.—

12 ‘‘(A) IN GENERAL.—The term ‘eligible tax13 payer’ means a taxpayer which derives more

14 than 50 percent of its gross income for the 3-

15 year period beginning 2 years prior to the cur16 rent taxable year from qualified farming busi17 nesses.

18 ‘‘(B) QUALIFIED FARMING BUSINESS.—

19 The term ‘qualified farming business’ means a

20 trade or business of farming (within the mean21 ing of section 2032A)—

22 ‘‘(i) with respect to which—

23 ‘‘(I) the taxpayer or a member of

24 the family of the taxpayer materially
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1 participates (within the meaning of

2 section 2032A(e)(6)), or

3 ‘‘(II) in the case of a taxpayer

4 other than an individual, a 20 percent

5 owner of the taxpayer or a member of

6 the owner’s family materially partici7 pates (as so defined), and

8 ‘‘(ii) which does not receive in excess

9 of $7,000,000 for sales in a taxable year.

10 For purposes of clause (i)(II), owners which are

11 members of a single family shall be treated as

12 a single owner.

13 ‘‘(3) OWNER.—

14 ‘‘(A) 20 PERCENT OWNER.—The term ‘20

15 percent owner’ means any person who would be

16 described in section 416(i)(1)(B)(i) if ‘20 per17 cent’ were substituted for ‘5 percent’ each place

18 it appears in such section.

19 ‘‘(B) 50 PERCENT OWNER.—The term ‘50

20 percent owner’ means any person who would be

21 described in section 416(i)(1)(B)(i) if ‘50 per22 cent’ were substituted for ‘5 percent’ each place

23 it appears in such section.

24 ‘‘(4) COORDINATION WITH SUBSECTION

25 (b)(2).—For purposes of applying subsection (b)(2),
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1 a farming loss for any taxable year shall be treated

2 as a separate net operating loss for such taxable

3 year to be taken into account for the remaining por4 tion of the net operating loss for such taxable year.

5 ‘‘(5) ELECTION.—Any taxpayer entitled to a

6 10-year carryback under subsection (b)(1)(G) from

7 any loss year may elect to have the carryback period

8 with respect to such loss year, and any portion of

9 the farming loss for such year, determined without

10 regard to subsection (b)(1)(G). Such election shall

11 be made in such manner as may be prescribed by

12 the Secretary and shall be made by the due date (in13 cluding extensions of time) for filing the taxpayer’s

14 return for the taxable year of the net operating loss.

15 Such election, once made for any taxable year, shall

16 be irrevocable for the taxable year.’’

17 SEC. 10. CERTAIN CASH RENTALS OF FARMLAND NOT TO

18 CAUSE RECAPTURE OF SPECIAL ESTATE TAX

19 VALUATION.

20 (a) IN GENERAL.—Subparagraph (E) of section

21 2032A(c)(7) (relating to special rules) is amended to read

22 as follows:

23 ‘‘(E) CERTAIN CASH RENTAL NOT TO

24 CAUSE RECAPTURE.—For purposes of this sub25 section, a qualified heir shall not be treated as
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1 failing to use property in a qualified use solely

2 because such heir rents such property on a net

3 cash basis to a member of the decedent’s fam4 ily, but only if, during the period of the lease,

5 such member of the decedent’s family uses such

6 property in a qualified use.’’

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

8 subsection (a) shall apply with respect to rentals occurring

9 after December 31, 1976.

10 SEC. 11. DECLARATORY JUDGMENT REMEDY RELATING TO

11 STATUS AND CLASSIFICATION OF FARMERS’

12 COOPERATIVES.

13 (a) IN GENERAL.—Paragraph (1) of section 7428(a)

14 (relating to creation of remedy) is amended by striking

15 ‘‘or’’ at the end of subparagraph (B), and by inserting

16 after subparagraph (C) the following new subparagraph:

17 ‘‘(D) with respect to the initial qualifica18 tion or continuing qualification of an organiza19 tion as a cooperative described in section

20 521(b) which is exempt from tax under section

21 521(a), or’’.

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

23 this section shall apply with respect to pleadings filed with

24 the United States Tax Court, the district court of the

25 United States for the District of Columbia, or the United
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1 States Court of Federal Claims after the date of enact2 ment of this Act but only with respect to determinations

3 (or requests for determinations) made after January 1,

4 1998.

5 SEC. 12. INCOME AVERAGING FOR FARMERS NOT TO IN6 CREASE ALTERNATIVE MINIMUM TAX LIABIL7 ITY.

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

9 tax) is amended by redesignating paragraph (2) as para10 graph (3) and by inserting after paragraph (1) the fol11 lowing:

12 ‘‘(2) COORDINATION WITH INCOME AVERAGING

13 FOR FARMERS.—Solely for purposes of this section,

14 section 1301 (relating to averaging of farm income)

15 shall not apply in computing the regular tax.’’

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

17 this section shall apply to taxable years beginning after

18 December 31, 1997.

Æ