II 

113TH CONGRESS 

1ST SESSION S. 493 

To amend the Internal Revenue Code of 1986 to establish dairy farm savings 

accounts, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

MARCH 7, 2013 

Mr. SCHUMER (for himself and Mr. CRAPO) 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 establish 

dairy farm savings accounts, 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 cited as the ‘‘Dairy Augmentation 

5 for Increased Retail in Yogurt products (DAIRY) Act’’. 

6 SEC. 2. ESTABLISHMENT OF DAIRY FARM SAVINGS AC7 COUNTS. 

8 (a) IN GENERAL.—Part VII of subchapter B of chap9 ter 1 of the Internal Revenue Code of 1986 is amended 


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1 by redesignating section 224 as section 225 and by insert2 ing after section 223 the following new section: 

3 ‘‘SEC. 224. DAIRY FARM SAVINGS ACCOUNTS. 

4 ‘‘(a) DEDUCTION ALLOWED.—In the case of a quali5 fied dairy farmer, there shall be allowed as a deduction 

6 for the taxable year an amount equal to the aggregate 

7 amount paid in cash during such taxable year by or on 

8 behalf of such individual to a dairy farm savings account 

9 of such individual. 

10 ‘‘(b) ACCOUNT BALANCE LIMITATION.—A deduction 

11 shall not be allowed under subsection (a) with respect to 

12 any portion of a contribution to a dairy farm savings ac13 count of an individual if such contribution would result 

14 in the sum of the balances in all such accounts of such 

15 individual to exceed 150 percent of the individual’s 3-year 

16 average of income derived from dairy farming. 

17 ‘‘(c) QUALIFIED DAIRY FARMER.—For purposes of 

18 this section, the term ‘qualified dairy farmer’ means, with 

19 respect to any taxable year, any individual who, during 

20 such year was engaged in the trade or business of dairy 

21 farming. 

22 ‘‘(d) DAIRY FARM SAVINGS ACCOUNT.—For pur23 poses of this section— 

24 ‘‘(1) IN GENERAL.—The term ‘dairy farm sav25 ings account’ means a trust created or organized in 


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1 the United States as a dairy farm savings account 

2 exclusively for the purpose of making qualified dis3 tributions, but only if the written governing instru4 ment creating the trust meets the following require5 ments: 

6 ‘‘(A) Except in the case of a rollover con7 tribution described in subsection (f)(4), no con8 tribution will be accepted unless it is in cash. 

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

10 section 408(n)), an insurance company (as de11 fined in section 816), or another person who 

12 demonstrates to the satisfaction of the Sec13 retary that the manner in which such person 

14 will administer the trust will be consistent with 

15 the requirements of this section. 

16 ‘‘(C) No part of the trust assets will be in17 vested in anything other than— 

18 ‘‘(i) cash, 

19 ‘‘(ii) securities issued by the United 

20 States Treasury, or 

21 ‘‘(iii) or such other low-risk, interest22 bearing securities as are approved by the 

23 Secretary. 

24 ‘‘(D) The assets of the trust will not be 

25 commingled with other property except in a 


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1 common trust fund or common investment 

2 fund. 

3 ‘‘(E) The interest of an individual in the 

4 balance in his account is nonforfeitable. 

5 ‘‘(2) QUALIFIED DISTRIBUTION.—The term 

6 ‘qualified distribution’ means any amount paid from 

7 a dairy farm savings account to the account bene8 ficiary to the extent that such amount when added 

9 to all other amounts paid from such accounts to 

10 such beneficiary during the taxable year (other than 

11 rollover contributions) does not exceed the excess (if 

12 any) of— 

13 ‘‘(A) 100 percent of such beneficiary’s 3- 

14 year average of income derived from dairy 

15 farming, over 

16 ‘‘(B) such beneficiary’s gross income de17 rived from dairy farming for the taxable year. 

18 ‘‘(3) 3-YEAR AVERAGE OF INCOME DERIVED

19 FROM DAIRY FARMING.—The term ‘3-year average 

20 of income derived from dairy farming’ means, with 

21 respect to any individual— 

22 ‘‘(A) the sum of the individual’s gross in23 come derived from dairy farming for the taxable 

24 year and the 2 preceding taxable years, divided 

25 by 


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1 ‘‘(B) the number of taxable years taken 

2 into account under subparagraph (A) during 

3 which such individual was engaged in the trade 

4 or business of dairy farming. 

5 ‘‘(4) ACCOUNT BENEFICIARY.—The term ‘ac6 count beneficiary’ means the individual on whose be7 half the dairy farm savings account was established. 

8 ‘‘(5) SPECIAL RULES; OTHER RULES.—Rules 

9 similar to the following rules shall apply for pur10 poses of this section: 

11 ‘‘(A) Section 219(d)(2) (relating to no de12 duction for rollovers). 

13 ‘‘(B) Section 219(f)(3) (relating to time 

14 when contributions deemed made). 

15 ‘‘(C) Section 408(g) (relating to commu16 nity property laws). 

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

18 accounts). 

19 ‘‘(e) TAX TREATMENT OF ACCOUNTS.— 

20 ‘‘(1) IN GENERAL.—A dairy farm savings ac21 count is exempt from taxation under this subtitle 

22 unless such account has ceased to be a dairy farm 

23 savings account. Notwithstanding the preceding sen24 tence, any such account is subject to the taxes im25 posed by section 511 (relating to imposition of tax 


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1 on unrelated business income of charitable, etc. or2 ganizations). 

3 ‘‘(2) TERMINATION OF ACCOUNTS.—If the ac4 count beneficiary ceases to engage in the trade or 

5 business of dairy farming— 

6 ‘‘(A) all dairy farm savings accounts of 

7 such individual shall cease to be such accounts, 

8 and 

9 ‘‘(B) the balance of all such accounts shall 

10 be treated as— 

11 ‘‘(i) distributed to such individual, 

12 and 

13 ‘‘(ii) not paid in a qualified distribu14 tion. 

15 ‘‘(3) PROHIBITED TRANSACTIONS; PLEDGING

16 ACCOUNT AS SECURITY.—Rules similar to the rules 

17 of paragraphs (2) and (4) of section 408(e) shall 

18 apply to dairy farm savings accounts, and any 

19 amount treated as distributed under such rules shall 

20 be treated as not used to pay qualified distributions. 

21 ‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.— 

22 ‘‘(1) IN GENERAL.—Any amount paid or dis23 tributed out of a dairy farm savings account (other 

24 than a rollover contribution described in paragraph 

25 (4)) shall be included in gross income of the account 


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1 beneficiary in the manner provided under section 72. 

2 Rules similar to the rules of paragraphs (2) and 

3 (3)(H) of section 408(d) shall apply for purposes of 

4 this paragraph. 

5 ‘‘(2) ADDITIONAL TAX ON NON-QUALIFIED DIS6 TRIBUTIONS.— 

7 ‘‘(A) IN GENERAL.—The tax imposed by 

8 this chapter on the account beneficiary for any 

9 taxable year in which there is a payment or dis10 tribution from a dairy farm savings account of 

11 such beneficiary which is not a qualified dis12 tribution shall be increased by 15 percent of the 

13 amount of such payment or distribution which 

14 is not a qualified distribution. 

15 ‘‘(B) EXCEPTION FOR DISABILITY OR

16 DEATH.—Subparagraph (A) shall not apply if 

17 the payment or distribution is made after the 

18 account beneficiary becomes disabled within the 

19 meaning of section 72(m)(7) or dies. 

20 ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE21 FORE DUE DATE OF RETURN.— 

22 ‘‘(A) IN GENERAL.—If any excess con23 tribution is contributed for a taxable year to a 

24 dairy farm savings account of an individual, 

25 paragraph (2) shall not apply to distributions 


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1 from the dairy farm savings accounts of such 

2 individual (to the extent such distributions do 

3 not exceed the aggregate excess contributions to 

4 all such accounts of such individual for such 

5 year) if— 

6 ‘‘(i) such distribution is received by 

7 the individual on or before the last day 

8 prescribed by law (including extensions of 

9 time) for filing such individual’s return for 

10 such taxable year, and 

11 ‘‘(ii) such distribution is accompanied 

12 by the amount of net income attributable 

13 to such excess contribution. 

14 Any net income described in clause (ii) shall be 

15 included in the gross income of the individual 

16 for the taxable year in which it is received. 

17 ‘‘(B) EXCESS CONTRIBUTION.—For pur18 poses of subparagraph (A), the term ‘excess 

19 contribution’ means any contribution (other 

20 than a rollover contribution) which is not de21 ductible under this section. 

22 ‘‘(4) ROLLOVER CONTRIBUTION.—An amount is 

23 described in this paragraph as a rollover contribu24 tion if it meets the requirements of subparagraphs 

25 (A) and (B). 


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1 ‘‘(A) IN GENERAL.—For purposes of this 

2 section, any amount paid or distributed from a 

3 dairy farm savings account to the account bene4 ficiary shall be treated as a qualified distribu5 tion to the extent the amount received is paid 

6 into a dairy farm savings account for the ben7 efit of such beneficiary not later than the 60th 

8 day after the day on which the beneficiary re9 ceives the payment or distribution. 

10 ‘‘(B) LIMITATION.—This paragraph shall 

11 not apply to any amount described in subpara12 graph (A) received by an individual from a 

13 dairy farm savings account if, at any time dur14 ing the 1-year period ending on the day of such 

15 receipt, such individual received any other 

16 amount described in subparagraph (A) from a 

17 dairy farm savings account which was not in18 cluded in the individual’s gross income because 

19 of the application of this paragraph. 

20 ‘‘(5) TRANSFER OF ACCOUNT INCIDENT TO DI21 VORCE.—The transfer of an individual’s interest in 

22 a dairy farm savings account to an individual’s 

23 spouse or former spouse under a divorce or separa24 tion instrument described in subparagraph (A) of 

25 section 71(b)(2) shall not be considered a taxable 


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1 transfer made by such individual notwithstanding 

2 any other provision of this subtitle, and such interest 

3 shall, after such transfer, be treated as a dairy farm 

4 savings account with respect to which such spouse is 

5 the account beneficiary. 

6 ‘‘(6) TREATMENT AFTER DEATH OF ACCOUNT

7 BENEFICIARY.— 

8 ‘‘(A) TREATMENT IF DESIGNATED BENE9 FICIARY IS SPOUSE.—If the account bene10 ficiary’s surviving spouse acquires such bene11 ficiary’s interest in a dairy farm savings ac12 count by reason of being the designated bene13 ficiary of such account at the death of the ac14 count beneficiary, such dairy farm savings ac15 count shall be treated as if the spouse were the 

16 account beneficiary. 

17 ‘‘(B) OTHER CASES.— 

18 ‘‘(i) IN GENERAL.—If, by reason of 

19 the death of the account beneficiary, any 

20 person acquires the account beneficiary’s 

21 interest in a dairy farm savings account in 

22 a case to which subparagraph (A) does not 

23 apply— 


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1 ‘‘(I) such account shall cease to 

2 be a dairy farm savings account as of 

3 the date of death, and 

4 ‘‘(II) an amount equal to the fair 

5 market value of the assets in such ac6 count on such date shall be included 

7 if such person is not the estate of 

8 such beneficiary, in such person’s 

9 gross income for the taxable year 

10 which includes such date, or if such 

11 person is the estate of such bene12 ficiary, in such beneficiary’s gross in13 come for the last taxable year of such 

14 beneficiary. 

15 ‘‘(ii) DEDUCTION FOR ESTATE

16 TAXES.—An appropriate deduction shall be 

17 allowed under section 691(c) to any person 

18 (other than the decedent or the decedent’s 

19 spouse) with respect to amounts included 

20 in gross income under clause (i) by such 

21 person. 

22 ‘‘(g) REPORTS.—The Secretary may require the 

23 trustee of a dairy farm savings account to make such re24 ports regarding such account to the Secretary and to the 

25 account beneficiary with respect to contributions, distribuVerDate Mar 15 2010 00:26 Mar 09, 2013 Jkt 029200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S493.IS S493

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1 tions, and such other matters as the Secretary determines 

2 appropriate. The reports required by this subsection shall 

3 be filed at such time and in such manner and furnished 

4 to such individuals at such time and in such manner as 

5 may be required by the Secretary.’’. 

6 (b) DEDUCTION ALLOWED WHETHER OR NOT INDI7 VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) 

8 of section 62 of such Code is amended by inserting after 

9 paragraph (21) the following new paragraph: 

10 ‘‘(22) DAIRY FARM SAVINGS ACCOUNTS.—The 

11 deduction allowed by section 224.’’. 

12 (c) TAX ON EXCESS CONTRIBUTIONS.—Section 4973 

13 of such Code (relating to tax on excess contributions to 

14 certain tax-favored accounts and annuities) is amended— 

15 (1) by striking ‘‘or’’ at the end of subsection 

16 (a)(4), by inserting ‘‘or’’ at the end of subsection 

17 (a)(5), and by inserting after subsection (a)(5) the 

18 following new paragraph: 

19 ‘‘(6) a dairy farm savings account (within the 

20 meaning of section 224(d)),’’; and 

21 (2) by adding at the end the following new sub22 section: 

23 ‘‘(h) EXCESS CONTRIBUTIONS TO DAIRY FARM SAV24 INGS ACCOUNTS.—For purposes of this section, in the 

25 case of dairy farm savings accounts (within the meaning 


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1 of section 224(d)), the term ‘excess contribution’ means 

2 the sum of— 

3 ‘‘(1) the aggregate amount contributed for the 

4 taxable year to the accounts (other than rollover 

5 contributions described in section 224(f)(4)) which is 

6 not allowable as a deduction under section 224 for 

7 such year, and 

8 ‘‘(2) the amount determined under this sub9 section for the preceding taxable year, reduced by 

10 the sum of— 

11 ‘‘(A) the distributions out of the accounts 

12 with respect to which additional tax was im13 posed under section 224(f)(2), and 

14 ‘‘(B) the excess (if any) of— 

15 ‘‘(i) the maximum amount allowable 

16 as a deduction under section 224(b) for 

17 the taxable year, over 

18 ‘‘(ii) the amount contributed to the 

19 accounts for the taxable year. 

20 For purposes of this subsection, any contribu21 tion which is distributed out of the dairy farm 

22 savings account in a distribution to which sec23 tion 224(f)(3) applies shall be treated as an 

24 amount not contributed.’’. 

25 (d) TAX ON PROHIBITED TRANSACTIONS.— 


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1 (1) Section 4975(c) of such Code (relating to 

2 tax on prohibited transactions) is amended by add3 ing at the end the following new paragraph: 

4 ‘‘(7) SPECIAL RULE FOR DAIRY FARM SAVINGS

5 ACCOUNTS.—An individual for whose benefit a dairy 

6 farm savings account (within the meaning of section 

7 224(d)) is established shall be exempt from the tax 

8 imposed by this section with respect to any trans9 action concerning such account (which would other10 wise be taxable under this section) if, with respect 

11 to such transaction, the account ceases to be a dairy 

12 farm savings account by reason of the application of 

13 section 224(e)(2) to such account.’’. 

14 (2) Section 4975(e)(1) of such Code is amended 

15 by redesignating subparagraphs (F) and (G) as sub16 paragraphs (G) and (H), respectively, and by insert17 ing after subparagraph (E) the following new sub18 paragraph: 

19 ‘‘(F) a dairy farm savings account de20 scribed in section 224(d),’’. 

21 (e) FAILURE TO PROVIDE REPORTS ON DAIRY FARM

22 SAVINGS ACCOUNTS.—Section 6693(a)(2) of such Code 

23 (relating to reports) is amended by redesignating subpara24 graphs (D) and (E) as subparagraphs (E) and (F), respecVerDate Mar 15 2010 00:26 Mar 09, 2013 Jkt 029200 PO 00000 Frm 00014 Fmt 6652 Sfmt 6201 E:\BILLS\S493.IS S493

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1 tively, and by inserting after subparagraph (C) the fol2 lowing new subparagraph: 

3 ‘‘(D) section 224(g) (relating to dairy farm 

4 savings accounts),’’. 

5 (f) CLERICAL AMENDMENT.—The table of sections 

6 for part VII of subchapter B of chapter 1 of such Code 

7 is amended by redesignating the item relating to section 

8 224 as relating to section 225 and by inserting after the 

9 item relating to section 223 the following: 

‘‘Sec. 224. Dairy farm savings accounts.’’. 

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

11 this section shall apply to taxable years ending after the 

12 date of the enactment of this Act. 

Æ 


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