II 

108TH CONGRESS 

2D SESSION S. 2584

To amend the Internal Revenue Code of 1986 to provide a tax credit for 

farmers’ investments in value-added agriculture. 

IN THE SENATE OF THE UNITED STATES 

JUNE 24, 2004

Mrs. CLINTON 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 

a tax credit for farmers’ investments in value-added agriculture.

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 ‘‘Agricultural Producers 

5 Value-Added Investment Tax Credit Act of 2004’’. 

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

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

2 adding at the end the following new section: 

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

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

6 in the case of a taxpayer who is—

7 ‘‘(1) an eligible person, or 

8 ‘‘(2) a farmer-owned entity, 

9 the value-added agricultural property investment credit 

10 determined under this section for any taxable year is 50 

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

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

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

16 of such taxable year. 

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

18 (a)—

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

21 service during a taxable year by an eligible person, 

22 the credit determined under this section for such 

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

24 amount of the creditable investments allowed for the 

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

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

5 the credit determined under this section shall 

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

8 such property is placed in service. 

9 ‘‘(B) CREDITABLE INVESTMENTS.—For 

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

12 property placed in service by a farmer-owned 

13 entity, the aggregate qualified investments 

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

16 ‘‘(i) the amount of the aggregate 

17 qualified investments made by such person 

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

20 property previously placed in service by 

21 such entity, and 

22 ‘‘(ii) the amount of the aggregate 

23 qualified investments made by such person 

24 in all other farmer-owned entities which 

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

2 in service by such other entities. 

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

4 paragraph, the aggregate qualified investments 

5 made by the eligible person which may be taken 

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

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

9 ‘‘(1) QUALIFIED VALUE-ADDED AGRICULTURAL

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

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

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

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

17 and residues, wood wastes and residues, and 

18 domesticated animal wastes, 

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

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

22 amortization in lieu of depreciation) is allowable 

23 and having a useful life (determined as of the 

24 time such property is placed in service) of 3 

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

2 eligible person or a farmer-owned entity. 

3 ‘‘(2) ELIGIBLE PERSON.—

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

6 during the taxable year in an eligible farming 

7 business. 

8 ‘‘(B) MATERIAL PARTICIPATION.—For 

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

11 in the trade or business of farming shall be 

12 made in a manner similar to the manner in 

13 which such determination is made under section 

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

15 corporation, cooperative, partnership, estate, or 

16 trust, such determination shall be made at the 

17 shareholder, partner, or beneficial interests level 

18 (as the case may be). 

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

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

21 farming business’ means a farming business (as 

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

23 passive activity (within the meaning of section 

24 469(c)). 

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

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

5 percent or more of the total voting power 

6 of the stock and 50 percent or more (in 

7 value) of the stock, 

8 ‘‘(ii) a partnership in which eligible 

9 persons own 50 percent or more of the 

10 total voting power of the profits interest 

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

12 profits interest, and 

13 ‘‘(iii) a cooperative in which eligible 

14 persons own 50 percent or more of the 

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

17 value) of the member patronage interests. 

18 ‘‘(B) CONSTRUCTIVE OWNERSHIP

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

20 rules similar to the rules of section 

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

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

2 of any individual shall include only his spouse 

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

5 and the spouses of his children, grandchildren, 

6 and great grandchildren, who reside in the 

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

9 purposes of the preceding sentence, a child who 

10 is legally adopted, or who is placed with the 

11 taxpayer by an authorized placement agency for 

12 adoption by the taxpayer, shall be treated as a 

13 child by blood. 

14 ‘‘(4) QUALIFIED INVESTMENTS.—

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

16 investments’ means a payment of cash for the 

17 purchase of a qualified equity interest in a 

18 farmer-owned entity. 

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

20 term ‘qualified equity interest’ means—

21 ‘‘(i) any stock in a domestic corpora22 tion if such stock is acquired by the tax23 payer after December 31, 2004, and before 

24 January 1, 2011, at its original issue (di-
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1 rectly or through an underwriter) from the 

2 corporation solely in exchange for cash, 

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

4 a domestic partnership if such interest is 

5 acquired by the taxpayer after December 

6 31, 2004, and before January 1, 2011, and 

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

9 taxpayer after December 31, 2004, and be10 fore January 1, 2011. 

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

12 shall apply for purposes of this paragraph. 

13 ‘‘(d) SPECIAL RULES.—For purposes of this sec14 tion—

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

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

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

19 for ‘$30,000’. 

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

21 prescribed by the Secretary—

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

23 OF ESTATES AND TRUSTS.—Rules similar to the 

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

3 50(b) shall apply. 

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

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

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

9 allowed and increased by the amount of recapture 

10 under subsection (e). 

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

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

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

17 the date qualified value-added agricultural property 

18 with respect to which such person was allowed a 

19 credit under subsection (a) is originally placed in 

20 service—

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

22 for purposes of this section,

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

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

3 an eligible person or farmer-owned entity for 

4 purposes of this section. 

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

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

8 eligible person for the 2-year period beginning 

9 on the date of death of such person. 

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

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

15 with respect to the transfer of property to such 

16 heir. 

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

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

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

21 property placed in service after December 31, 2010.’’.

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

25 at the end of paragraph (14), by striking the period at
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1 the end of paragraph (15) and inserting ‘‘, plus’’, and by 

2 adding at the end the following new paragraph: 

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

6 section 45G(a).’’. 

7 (c) CREDIT ALLOWABLE AGAINST MINIMUM TAX.—

8 (1) IN GENERAL.—Paragraph (3) of section 38 

9 of such Code is amended—

10 (A) by inserting ‘‘AND VALUE-ADDED AGRI11 CULTURAL PROPERTY CREDIT’’ after ‘‘EM12 PLOYEE CREDIT’’ in the heading, 

13 (B) by inserting ‘‘and the value-added ag14 ricultural property credit’’ after ‘‘employee 

15 credit’’ each place it appears in subparagraph 

16 (A), and 

17 (C) by adding at the end the following new 

18 subparagraph: 

19 ‘‘(C) VALUE-ADDED AGRICULTURAL PROP20 ERTY CREDIT.—For purposes of this sub21 section, the term ‘value-added agricultural prop22 erty credit’ means the credit determined under 

23 section 45G.’’

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

25 of section 38(c)(2)(A)(ii) of such Code is amended 
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1 by inserting ‘‘or the value-added agricultural prop2 erty credit’’ after ‘‘employment credit’’. 

3 (d) LIMITATION ON CARRYBACK.—Subsection (d) of 

4 section 39 of such Code is amended by adding at the end 

5 thereof the following new paragraph: 

6 ‘‘(10) NO CARRYBACK OF VALUE-ADDED AGRI7 CULTURAL PROPERTY INVESTMENT CREDIT BEFORE

8 EFFECTIVE DATE.—No portion of the unused busi9 ness credit for any taxable year which is attributable 

10 to the credit determined under section 45G may be 

11 carried back to any taxable year ending before the 

12 date of the enactment of section 45G.’’. 

13 (e) DEDUCTION FOR CERTAIN UNUSED BUSINESS

14 CREDITS.—Subsection (c) of section 196 of such Code is 

15 amended by striking ‘‘and’’ at the end of paragraph (9), 

16 by striking the period at the end of paragraph (10) and 

17 inserting ‘‘, and’’, and by adding after paragraph (10) the 

18 following new paragraph: 

19 ‘‘(11) the value-added agricultural property in20 vestment credit determined under section 45G.’’. 

21 (f) BASIS ADJUSTMENT.—Subsection (a) of section 

22 1016 of such Code is amended by striking ‘‘and’’ at the 

23 end of paragraph (27), by striking the period at the end 

24 of paragraph (28) and inserting ‘‘; and’’, and by adding 

25 at the end the following new paragraph: 
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1 ‘‘(29) to the extent provided in section 

2 45G(d)(3), in the case of payments with respect to 

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

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

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

6 of such Code is amended by adding at the end thereof 

7 the following new section:

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

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

9 this section shall apply to qualified investments (as defined 

10 in section 45G(c)(5) of the Internal Revenue Code of 1986 

11 (as added by this section) made, and property placed in 

12 service, after December 31, 2004.

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