I 

108TH CONGRESS 

2D SESSION H. R. 5169 

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

farmers and fishermen, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

SEPTEMBER 29, 2004 

Mr. NUSSLE (for himself, Mr. KING of Iowa, Mr. LATHAM, and Mr. LEACH) 

introduced the following bill; which was referred to the Committee on 

Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

tax relief for farmers and fishermen, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; ETC. 

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

5 ‘‘Tax Empowerment and Relief for Farmers and Fisher6 men (TERFF) Act’’. 

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend9 ment or repeal is expressed in terms of an amendment 

10 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.— 

Sec. 1. Short title; etc. 

Sec. 2. Farm, fishing, and ranch risk management accounts. 

Sec. 3. Exclusion of rental income from self-employment tax. 

Sec. 4. Exclusion of conservation reserve program payments from self-employment tax. 

Sec. 5. Exemption of agricultural bonds from private activity bond volume limits. 

Sec. 6. Modifications to section 512(b)(13). 

Sec. 7. Charitable deduction for contributions of food inventory. 

Sec. 8. Coordinate farmers and fishermen income averaging and the alternative 

minimum tax. 

Sec. 9. Modification to cooperative marketing rules to include value added processing involving animals. 

Sec. 10. Extension of declaratory judgment procedures to farmers’ cooperative 

organizations. 

Sec. 11. Small ethanol producer credit. 

Sec. 12. Payment of dividends on stock of cooperatives without reducing patronage dividends. 

Sec. 13. Special rules for livestock sold on account of weather-related conditions. 

4 SEC. 2. FARM, FISHING, AND RANCH RISK MANAGEMENT 

5 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 new section: 

10 ‘‘SEC. 468C. FARM, FISHING, AND RANCH RISK MANAGE11 MENT ACCOUNTS. 

12 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi13 vidual engaged in an eligible farming business or commer14 cial fishing, there shall be allowed as a deduction for any 

15 taxable year the amount paid in cash by the taxpayer dur16 ing the taxable year to a Farm, Fishing, and Ranch Risk 
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1 Management Account (hereinafter referred to as the 

2 ‘FFARRM Account’). 

3 ‘‘(b) LIMITATION.— 

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

5 taxpayer may pay into the FFARRM Account for 

6 any taxable year shall not exceed 20 percent of so 

7 much of the taxable income of the taxpayer (deter8 mined without regard to this section) which is at9 tributable (determined in the manner applicable 

10 under section 1301) to any eligible farming business 

11 or commercial fishing. 

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

13 FFARRM Account may not be used to purchase, 

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

15 to any fishery, or otherwise contribute to the over16 capitalization of any fishery. The Secretary of Com17 merce shall implement regulations to enforce this 

18 paragraph. 

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

20 section— 

21 ‘‘(1) ELIGIBLE FARMING BUSINESS.—The term 

22 ‘eligible farming business’ means any farming busi23 ness (as defined in section 263A(e)(4)) which is not 

24 a passive activity (within the meaning of section 

25 469(c)) of the taxpayer. 
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1 ‘‘(2) COMMERCIAL FISHING.—The term ‘com2 mercial fishing’ has the meaning given such term by 

3 section (3) of the Magnuson-Stevens Fishery Con4 servation and Management Act (16 U.S.C. 1802) 

5 but only if such fishing is not a passive activity 

6 (within the meaning of section 469(c)) of the tax7 payer. 

8 ‘‘(d) FFARRM ACCOUNT.—For purposes of this sec9 tion— 

10 ‘‘(1) IN GENERAL.—The term ‘FFARRM Ac11 count’ means a trust created or organized in the 

12 United States for the exclusive benefit of the tax13 payer, but only if the written governing instrument 

14 creating the trust meets the following requirements: 

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

16 any taxable year in excess of the amount al17 lowed as a deduction under subsection (a) for 

18 such year. 

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

20 section 408(n)) or another person who dem21 onstrates to the satisfaction of the Secretary 

22 that the manner in which such person will ad23 minister the trust will be consistent with the re24 quirements of this section. 
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1 ‘‘(C) The assets of the trust consist en2 tirely of cash or of obligations which have ade3 quate stated interest (as defined in section 

4 1274(c)(2)) and which pay such interest not 

5 less often than annually. 

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

7 currently to the grantor. 

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

9 commingled with other property except in a 

10 common trust fund or common investment 

11 fund. 

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

13 The grantor of a FFARRM Account shall be treated 

14 for purposes of this title as the owner of such Ac15 count and shall be subject to tax thereon in accord16 ance with subpart E of part I of subchapter J of 

17 this chapter (relating to grantors and others treated 

18 as substantial owners). 

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

20 ‘‘(1) IN GENERAL.—Except as provided in para21 graph (2), there shall be includible in the gross in22 come of the taxpayer for any taxable year— 

23 ‘‘(A) any amount distributed from a 

24 FFARRM Account of the taxpayer during such 

25 taxable year, and 
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1 ‘‘(B) any deemed distribution under— 

2 ‘‘(i) subsection (f)(1) (relating to de3 posits not distributed within 5 years), 

4 ‘‘(ii) subsection (f)(2) (relating to ces5 sation in eligible farming business), and 

6 ‘‘(iii) subparagraph (B) or (C) of sub7 section (f)(3) (relating to prohibited trans8 actions and pledging account as security). 

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

10 apply to— 

11 ‘‘(A) any distribution to the extent attrib12 utable to income of the Account, and 

13 ‘‘(B) the distribution of any contribution 

14 paid during a taxable year to a FFARRM Ac15 count to the extent that such contribution ex16 ceeds the limitation applicable under subsection 

17 (b) if requirements similar to the requirements 

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

19 For purposes of subparagraph (A), distributions 

20 shall be treated as first attributable to income and 

21 then to other amounts. 

22 ‘‘(f) SPECIAL RULES.— 

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

24 ARE NOT DISTRIBUTED WITHIN 5 YEARS.— 
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1 ‘‘(A) IN GENERAL.—If, at the close of any 

2 taxable year, there is a nonqualified balance in 

3 any FFARRM Account— 

4 ‘‘(i) there shall be deemed distributed 

5 from such Account during such taxable 

6 year an amount equal to such balance, and 

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

8 this chapter for such taxable year shall be 

9 increased by 10 percent of such deemed 

10 distribution. 

11 The preceding sentence shall not apply if an 

12 amount equal to such nonqualified balance is 

13 distributed from such Account to the taxpayer 

14 before the due date (including extensions) for 

15 filing the return of tax imposed by this chapter 

16 for such year (or, if earlier, the date the tax17 payer files such return for such year). 

18 ‘‘(B) NONQUALIFIED BALANCE.—For pur19 poses of subparagraph (A), the term ‘non20 qualified balance’ means any balance in the Ac21 count on the last day of the taxable year which 

22 is attributable to amounts deposited in such Ac23 count before the 4th preceding taxable year. 

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

25 this paragraph, distributions from a FFARRM 
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1 Account (other than distributions of current in2 come) shall be treated as made from deposits in 

3 the order in which such deposits were made, be4 ginning with the earliest deposits. 

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

6 the close of the first disqualification period after a 

7 period for which the taxpayer was engaged in an eli8 gible farming business or commercial fishing, there 

9 shall be deemed distributed from the FFARRM Ac10 count of the taxpayer an amount equal to the bal11 ance in such Account (if any) at the close of such 

12 disqualification period. For purposes of the pre13 ceding sentence, the term ‘disqualification period’ 

14 means any period of 2 consecutive taxable years for 

15 which the taxpayer is not engaged in an eligible 

16 farming business or commercial fishing. 

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

18 to the following rules shall apply for purposes of this 

19 section: 

20 ‘‘(A) Section 220(f)(8) (relating to treat21 ment after death of account holder). 

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

23 exemption of account where individual engages 

24 in prohibited transaction). 
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1 ‘‘(C) Section 408(e)(4) (relating to effect 

2 of pledging account as security). 

3 ‘‘(D) Section 408(g) (relating to commu4 nity property laws). 

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

6 accounts). 

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

8 For purposes of this section, a taxpayer shall be 

9 deemed to have made a payment to a FFARRM Ac10 count on the last day of a taxable year if such pay11 ment is made on account of such taxable year and 

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

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

14 taxable year. 

15 ‘‘(5) INDIVIDUAL.—For purposes of this sec16 tion, the term ‘individual’ shall not include an estate 

17 or trust. 

18 ‘‘(6) DEDUCTION NOT ALLOWED FOR SELF-EM19 PLOYMENT TAX.—The deduction allowable by reason 

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

21 determining an individual’s net earnings from self22 employment (within the meaning of section 1402(a)) 

23 for purposes of chapter 2. 

24 ‘‘(g) REPORTS.—The trustee of a FFARRM Account 

25 shall make such reports regarding such Account to the 
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1 Secretary and to the person for whose benefit the Account 

2 is maintained with respect to contributions, distributions, 

3 and such other matters as the Secretary may require 

4 under regulations. The reports required by this subsection 

5 shall be filed at such time and in such manner and fur6 nished to such persons at such time and in such manner 

7 as may be required by such regulations.’’. 

8 (b) TAX ON EXCESS CONTRIBUTIONS.— 

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

10 tax on excess contributions to certain tax-favored ac11 counts and annuities) is amended by striking ‘‘or’’ 

12 at the end of paragraph (4), by redesignating para13 graph (5) as paragraph (6), and by inserting after 

14 paragraph (4) the following new paragraph: 

15 ‘‘(5) a FFARRM Account (within the meaning 

16 of section 468C(d)), or’’. 

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

18 end the following new subsection: 

19 ‘‘(h) EXCESS CONTRIBUTIONS TO FFARRM AC20 COUNTS.—For purposes of this section, in the case of a 

21 FFARRM Account (within the meaning of section 

22 468C(d)), the term ‘excess contributions’ means the 

23 amount by which the amount contributed for the taxable 

24 year to the Account exceeds the amount which may be con25 tributed to the Account under section 468C(b) for such 
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1 taxable year. For purposes of this subsection, any con2 tribution which is distributed out of the FFARRM Ac3 count in a distribution to which section 468C(e)(2)(B) ap4 plies shall be treated as an amount not contributed.’’. 

5 (3) The section heading for section 4973 is 

6 amended to read as follows: 

7 ‘‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN AC8 COUNTS, ANNUITIES, ETC.’’. 

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

10 amended by striking the item relating to section 

11 4973 and inserting the following new item: 

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

etc.’’. 

12 (c) TAX ON PROHIBITED TRANSACTIONS.— 

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

14 tax on prohibited transactions) is amended by add15 ing at the end the following new paragraph: 

16 ‘‘(7) SPECIAL RULE FOR FFARRM ACCOUNTS.— 

17 A person for whose benefit a FFARRM Account 

18 (within the meaning of section 468C(d)) is estab19 lished shall be exempt from the tax imposed by this 

20 section with respect to any transaction concerning 

21 such account (which would otherwise be taxable 

22 under this section) if, with respect to such trans23 action, the account ceases to be a FFARRM Ac-
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1 count by reason of the application of section 

2 468C(f)(3)(A) to such account.’’. 

3 (2) Paragraph (1) of section 4975(e) is amend4 ed by redesignating subparagraphs (F) and (G) as 

5 subparagraphs (G) and (H), respectively, and by in6 serting after subparagraph (E) the following new 

7 subparagraph: 

8 ‘‘(F) a FFARRM Account described in 

9 section 468C(d),’’. 

10 (d) FAILURE TO PROVIDE REPORTS ON FFARRM 

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

12 to failure to provide reports on certain tax-favored ac13 counts or annuities) is amended by redesignating subpara14 graphs (D) and (E) as subparagraphs (E) and (F), respec15 tively, and by inserting after subparagraph (C) the fol16 lowing new subparagraph: 

17 ‘‘(D) section 468C(g) (relating to 

18 FFARRM Accounts),’’. 

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

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

21 amended by inserting after the item relating to section 

22 468B the following new item: 

‘‘Sec. 468C. Farm, Fishing and Ranch Risk Management Accounts.’’. 
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1 (f) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

4 SEC. 3. EXCLUSION OF RENTAL INCOME FROM SELF-EM5 PLOYMENT TAX. 

6 (a) INTERNAL REVENUE CODE.—Section 

7 1402(a)(1)(A) (relating to net earnings from self-employ8 ment) is amended by striking ‘‘an arrangement’’ and in9 serting ‘‘a written lease agreement’’. 

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

11 the Social Security Act is amended by striking ‘‘an ar12 rangement’’ and inserting ‘‘a written lease agreement’’. 

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

14 this section shall apply to taxable years beginning after 

15 the date of the enactment of this Act. 

16 SEC. 4. EXCLUSION OF CONSERVATION RESERVE PRO17 GRAM PAYMENTS FROM SELF-EMPLOYMENT 

18 TAX. 

19 (a) INTERNAL REVENUE CODE.—Section 1402(a)(1) 

20 (relating to net earnings from self-employment) is amend21 ed by inserting ‘‘and including payments under section 

22 1233(2) of the Food Security Act of 1985 (16 U.S.C. 

23 3833(2))’’ after ‘‘crop shares’’. 

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

25 the Social Security Act is amended by inserting ‘‘and in-
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1 cluding payments under section 1233(2) of the Food Secu2 rity Act of 1985 (16 U.S.C. 3833(2))’’ after ‘‘crop 

3 shares’’. 

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

5 this section shall apply to payments made after the date 

6 of the enactment of this Act. 

7 SEC. 5. EXEMPTION OF AGRICULTURAL BONDS FROM PRI8 VATE ACTIVITY BOND VOLUME LIMITS. 

9 (a) IN GENERAL.—Section 146(g) (relating to excep10 tion for certain bonds) is amended by striking ‘‘and’’ at 

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

12 end of paragraph (4) and inserting ‘‘, and’’, and by insert13 ing after paragraph (4) the following new paragraph: 

14 ‘‘(5) any qualified small issue bond described in 

15 section 144(a)(12)(B)(ii).’’. 

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

17 this section shall apply to bonds issued after the date of 

18 the enactment of this Act. 

19 SEC. 6. MODIFICATIONS TO SECTION 512(b)(13). 

20 (a) IN GENERAL.—Paragraph (13) of section 512(b) 

21 (relating to special rules for certain amounts received from 

22 controlled entities) is amended by redesignating subpara23 graph (E) as subparagraph (F) and by inserting after sub24 paragraph (D) the following new subparagraph: 
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1 ‘‘(E) PARAGRAPH TO APPLY ONLY TO EX2 CESS PAYMENTS.— 

3 ‘‘(i) IN GENERAL.—Subparagraph (A) 

4 shall apply only to the portion of a speci5 fied payment received or accrued by the 

6 controlling organization that exceeds the 

7 amount which would have been paid or ac8 crued if such payment met the require9 ments prescribed under section 482. 

10 ‘‘(ii) ADDITION TO TAX FOR VALU11 ATION MISSTATEMENTS.—The tax imposed 

12 by this chapter on the controlling organiza13 tion shall be increased by an amount equal 

14 to 20 percent of the larger of— 

15 ‘‘(I) such excess determined with16 out regard to any amendment or sup17 plement to a return of tax, or 

18 ‘‘(II) such excess determined 

19 with regard to all such amendments 

20 and supplements.’’. 

21 (b) EFFECTIVE DATE.— 

22 (1) IN GENERAL.—The amendment made by 

23 this section shall apply to payments received or ac24 crued after December 31, 2000. 
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1 (2) PAYMENTS SUBJECT TO BINDING CONTRACT

2 TRANSITION RULE.—If the amendments made by 

3 section 1041 of the Taxpayer Relief Act of 1997 did 

4 not apply to any amount received or accrued in the 

5 first 2 taxable years beginning on or after the date 

6 of the enactment of the Taxpayer Relief Act of 1997 

7 under any contract described in subsection (b)(2) of 

8 such section, such amendments also shall not apply 

9 to amounts received or accrued under such contract 

10 before January 1, 2001. 

11 SEC. 7. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF 

12 FOOD INVENTORY. 

13 (a) IN GENERAL.—Subsection (e) of section 170 (re14 lating to certain contributions of ordinary income and cap15 ital gain property) is amended by adding at the end the 

16 following new paragraph: 

17 ‘‘(7) APPLICATION OF PARAGRAPH (3) TO CER18 TAIN CONTRIBUTIONS OF FOOD INVENTORY.—For 

19 purposes of this section— 

20 ‘‘(A) EXTENSION TO INDIVIDUALS.—In the 

21 case of a charitable contribution of apparently 

22 wholesome food— 

23 ‘‘(i) paragraph (3)(A) shall be applied 

24 without regard to whether the contribution 

25 is made by a C corporation, and 
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1 ‘‘(ii) in the case of a taxpayer other 

2 than a C corporation, the aggregate 

3 amount of such contributions from any 

4 trade or business (or interest therein) of 

5 the taxpayer for any taxable year which 

6 may be taken into account under this sec7 tion shall not exceed 10 percent of the tax8 payer’s net income from any such trade or 

9 business, computed without regard to this 

10 section, for such taxable year. 

11 ‘‘(B) LIMITATION ON REDUCTION.—In the 

12 case of a charitable contribution of apparently 

13 wholesome food, notwithstanding paragraph 

14 (3)(B), the amount of the reduction determined 

15 under paragraph (1)(A) shall not exceed the 

16 amount by which the fair market value of such 

17 property exceeds twice the basis of such prop18 erty. 

19 ‘‘(C) DETERMINATION OF BASIS.—If a 

20 taxpayer— 

21 ‘‘(i) does not account for inventories 

22 under section 471, and 

23 ‘‘(ii) is not required to capitalize indi24 rect costs under section 263A, 
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1 the taxpayer may elect, solely for purposes of 

2 paragraph (3)(B), to treat the basis of any ap3 parently wholesome food as being equal to 25 

4 percent of the fair market value of such food. 

5 ‘‘(D) DETERMINATION OF FAIR MARKET

6 VALUE.—In the case of a charitable contribu7 tion of apparently wholesome food which is a 

8 qualified contribution (within the meaning of 

9 paragraph (3), as modified by subparagraph 

10 (A) of this paragraph) and which, solely by rea11 son of internal standards of the taxpayer or 

12 lack of market, cannot or will not be sold, the 

13 fair market value of such contribution shall be 

14 determined— 

15 ‘‘(i) without regard to such internal 

16 standards or such lack of market and 

17 ‘‘(ii) by taking into account the price 

18 at which the same or substantially the 

19 same food items (as to both type and qual20 ity) are sold by the taxpayer at the time of 

21 the contribution (or, if not so sold at such 

22 time, in the recent past). 

23 ‘‘(E) APPARENTLY WHOLESOME FOOD.— 

24 For purposes of this paragraph, the term ‘ap25 parently wholesome food’ has the meaning given 
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1 such term by section 22(b)(2) of the Bill Emer2 son Good Samaritan Food Donation Act (42 

3 U.S.C. 1791(b)(2)), as in effect on the date of 

4 the enactment of this paragraph.’’. 

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

6 this section shall apply to contributions made after the 

7 date of the enactment of this Act. 

8 SEC. 8. COORDINATE FARMERS AND FISHERMEN INCOME 

9 AVERAGING AND THE ALTERNATIVE MIN10 IMUM TAX. 

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

12 tax) is amended by redesignating paragraph (2) as para13 graph (3) and by inserting after paragraph (1) the fol14 lowing new paragraph: 

15 ‘‘(2) COORDINATION WITH INCOME AVERAGING

16 FOR FARMERS AND FISHERMEN.—Solely for pur17 poses of this section, section 1301 (relating to aver18 aging of farm and fishing income) shall not apply in 

19 computing the regular tax.’’. 

20 (b) ALLOWING INCOME AVERAGING FOR FISHER21 MEN.— 

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

23 by striking ‘‘farming business’’ and inserting ‘‘farm24 ing business or fishing business’’. 

25 (2) DEFINITION OF ELECTED FARM INCOME.— 
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1 (A) IN GENERAL.—Clause (i) of section 

2 1301(b)(1)(A) is amended by inserting ‘‘or fish3 ing business’’ before the semicolon. 

4 (B) CONFORMING AMENDMENT.—Subpara5 graph (B) of section 1301(b)(1) is amended by 

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

7 business’’ both places it occurs. 

8 (3) DEFINITION OF FISHING BUSINESS.—Sec9 tion 1301(b) is amended by adding at the end the 

10 following new paragraph: 

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

12 business’ means the conduct of commercial fishing 

13 as defined in section 3 of the Magnuson-Stevens 

14 Fishery Conservation and Management Act (16 

15 U.S.C. 1802).’’. 

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

17 this section shall apply to taxable years beginning after 

18 the date of the enactment of this Act. 

19 SEC. 9. MODIFICATION TO COOPERATIVE MARKETING 

20 RULES TO INCLUDE VALUE ADDED PROC21 ESSING INVOLVING ANIMALS. 

22 (a) IN GENERAL.—Section 1388 (relating to defini23 tions and special rules) is amended by adding at the end 

24 the following new subsection: 
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1 ‘‘(k) COOPERATIVE MARKETING INCLUDES VALUE2 ADDED PROCESSING INVOLVING ANIMALS.—For pur3 poses of section 521 and this subchapter, the term ‘mar4 keting the products of members or other producers’ in5 cludes feeding the products of members or other producers 

6 to cattle, hogs, fish, chickens, or other animals and selling 

7 the resulting animals or animal products.’’. 

8 (b) CONFORMING AMENDMENT.—Section 521(b) is 

9 amended by adding at the end the following new para10 graph: 

11 ‘‘(7) CROSS REFERENCE.— 

‘‘For treatment of value-added processing involving animals, see section 1388(k).’’. 

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

13 this section shall apply to taxable years beginning after 

14 the date of the enactment of this Act. 

15 SEC. 10. EXTENSION OF DECLARATORY JUDGMENT PROCE16 DURES TO FARMERS’ COOPERATIVE ORGANI17 ZATIONS. 

18 (a) IN GENERAL.—Section 7428(a)(1) (relating to 

19 declaratory judgments of tax exempt organizations) is 

20 amended by striking ‘‘or’’ at the end of subparagraph (B) 

21 and by adding at the end the following new subparagraph: 

22 ‘‘(D) with respect to the initial classifica23 tion or continuing classification of a cooperative 
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1 as described in section 521(b) which is exempt 

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

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

4 this section shall apply with respect to pleadings filed after 

5 the date of the enactment of this Act. 

6 SEC. 11. SMALL ETHANOL PRODUCER CREDIT. 

7 (a) ALLOCATION OF ALCOHOL FUELS CREDIT TO

8 PATRONS OF A COOPERATIVE.—Section 40(g) (relating to 

9 alcohol used as fuel) is amended by adding at the end the 

10 following new paragraph: 

11 ‘‘(6) ALLOCATION OF SMALL ETHANOL PRO12 DUCER CREDIT TO PATRONS OF COOPERATIVE.— 

13 ‘‘(A) ELECTION TO ALLOCATE.— 

14 ‘‘(i) IN GENERAL.—In the case of a 

15 cooperative organization described in sec16 tion 1381(a), any portion of the credit de17 termined under subsection (a)(3) for the 

18 taxable year may, at the election of the or19 ganization, be apportioned pro rata among 

20 patrons of the organization on the basis of 

21 the quantity or value of business done with 

22 or for such patrons for the taxable year. 

23 ‘‘(ii) FORM AND EFFECT OF ELEC24 TION.—An election under clause (i) for any 

25 taxable year shall be made on a timely 
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1 filed return for such year. Such election, 

2 once made, shall be irrevocable for such 

3 taxable year. 

4 ‘‘(B) TREATMENT OF ORGANIZATIONS AND

5 PATRONS.—The amount of the credit appor6 tioned to patrons under subparagraph (A)— 

7 ‘‘(i) shall not be included in the 

8 amount determined under subsection (a) 

9 with respect to the organization for the 

10 taxable year, 

11 ‘‘(ii) shall be included in the amount 

12 determined under subsection (a) for the 

13 taxable year of each patron for which the 

14 patronage dividends for the taxable year 

15 described in subparagraph (A) are included 

16 in gross income, and 

17 ‘‘(iii) shall be included in gross income 

18 of such patrons for the taxable year in the 

19 manner and to the extent provided in sec20 tion 87. 

21 ‘‘(C) SPECIAL RULES FOR DECREASE IN

22 CREDITS FOR TAXABLE YEAR.—If the amount 

23 of the credit of a cooperative organization de24 termined under subsection (a)(3) for a taxable 

25 year is less than the amount of such credit 
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1 shown on the return of the cooperative organi2 zation for such year, an amount equal to the 

3 excess of— 

4 ‘‘(i) such reduction, over 

5 ‘‘(ii) the amount not apportioned to 

6 such patrons under subparagraph (A) for 

7 the taxable year, 

8 shall be treated as an increase in tax imposed 

9 by this chapter on the organization. Such in10 crease shall not be treated as tax imposed by 

11 this chapter for purposes of determining the 

12 amount of any credit under this chapter or for 

13 purposes of section 55.’’. 

14 (b) IMPROVEMENTS TO SMALL ETHANOL PRODUCER

15 CREDIT.— 

16 (1) DEFINITION OF SMALL ETHANOL PRO17 DUCER.—Section 40(g) (relating to definitions and 

18 special rules for eligible small ethanol producer cred19 it) is amended by striking ‘‘30,000,000’’ each place 

20 it appears and inserting ‘‘60,000,000’’. 

21 (2) SMALL ETHANOL PRODUCER CREDIT NOT A

22 PASSIVE ACTIVITY CREDIT.—Clause (i) of section 

23 469(d)(2)(A) is amended by striking ‘‘subpart D’’ 

24 and inserting ‘‘subpart D, other than section 

25 40(a)(3),’’. 
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1 (3) ALLOWING CREDIT AGAINST ENTIRE REG2 ULAR TAX AND MINIMUM TAX.— 

3 (A) IN GENERAL.—Subsection (c) of sec4 tion 38 (relating to limitation based on amount 

5 of tax) is amended by redesignating paragraph 

6 (4) as paragraph (5) and by inserting after 

7 paragraph (3) the following new paragraph: 

8 ‘‘(4) SPECIAL RULES FOR SMALL ETHANOL

9 PRODUCER CREDIT.— 

10 ‘‘(A) IN GENERAL.—In the case of the 

11 small ethanol producer credit— 

12 ‘‘(i) this section and section 39 shall 

13 be applied separately with respect to the 

14 credit, and 

15 ‘‘(ii) in applying paragraph (1) to the 

16 credit— 

17 ‘‘(I) the amounts in subpara18 graphs (A) and (B) thereof shall be 

19 treated as being zero, and 

20 ‘‘(II) the limitation under para21 graph (1) (as modified by subclause 

22 (I)) shall be reduced by the credit al23 lowed under subsection (a) for the 

24 taxable year (other than the small 

25 ethanol producer credit). 
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1 ‘‘(B) SMALL ETHANOL PRODUCER CRED2 IT.—For purposes of this subsection, the term 

3 ‘small ethanol producer credit’ means the credit 

4 allowable under subsection (a) by reason of sec5 tion 40(a)(3).’’. 

6 (B) CONFORMING AMENDMENTS.—Sub7 clause (II) of section 38(c)(2)(A)(ii) and sub8 clause (II) of section 38(c)(3)(A)(ii) are each 

9 amended by inserting ‘‘or the small ethanol pro10 ducer credit’’ after ‘‘employee credit’’. 

11 (4) SMALL ETHANOL PRODUCER CREDIT NOT

12 ADDED BACK TO INCOME UNDER SECTION 87.—Sec13 tion 87 (relating to income inclusion of alcohol fuel 

14 credit) is amended to read as follows: 

15 ‘‘SEC. 87. ALCOHOL FUEL CREDIT. 

16 ‘‘Gross income includes an amount equal to the sum 

17 of— 

18 ‘‘(1) the amount of the alcohol mixture credit 

19 determined with respect to the taxpayer for the tax20 able year under section 40(a)(1), and 

21 ‘‘(2) the alcohol credit determined with respect 

22 to the taxpayer for the taxable year under section 

23 40(a)(2).’’. 

24 (c) CONFORMING AMENDMENT.—Section 1388 (re25 lating to definitions and special rules for cooperative orga-
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1 nizations) is amended by adding at the end the following 

2 new subsection: 

3 ‘‘(k) CROSS REFERENCE.—For provisions relating to 

4 the apportionment of the alcohol fuels credit between coop5 erative organizations and their patrons, see section 

6 40(g)(6).’’. 

7 (d) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to taxable years beginning after 

9 the date of the enactment of this Act. 

10 SEC. 12. PAYMENT OF DIVIDENDS ON STOCK OF COOPERA11 TIVES WITHOUT REDUCING PATRONAGE 

12 DIVIDENDS. 

13 (a) IN GENERAL.—Subsection (a) of section 1388 

14 (relating to patronage dividend defined) is amended by 

15 adding at the end the following new sentence: ‘‘For pur16 poses of paragraph (3), net earnings shall not be reduced 

17 by amounts paid during the year as dividends on capital 

18 stock or other proprietary capital interests of the organiza19 tion to the extent that the articles of incorporation or by20 laws of such organization or other contract with patrons 

21 provide that such dividends are in addition to amounts 

22 otherwise payable to patrons which are derived from busi23 ness done with or for patrons during the taxable year.’’. 
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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to distributions in taxable years 

3 beginning after the date of the enactment of this Act. 

4 SEC. 13. SPECIAL RULES FOR LIVESTOCK SOLD ON AC5 COUNT OF WEATHER-RELATED CONDITIONS. 

6 (a) RULES FOR REPLACEMENT OF INVOLUNTARILY

7 CONVERTED LIVESTOCK.—Subsection (e) of section 1033 

8 (relating to involuntary conversions) is amended— 

9 (1) by striking ‘‘CONDITIONS.—For purposes’’ 

10 and inserting ‘‘CONDITIONS.— 

11 ‘‘(1) IN GENERAL.—For purposes’’, and 

12 (2) by adding at the end the following new 

13 paragraph: 

14 ‘‘(2) EXTENSION OF REPLACEMENT PERIOD.— 

15 ‘‘(A) IN GENERAL.—In the case of 

16 drought, flood, or other weather-related condi17 tions described in paragraph (1) which result in 

18 the area being designated as eligible for assist19 ance by the Federal Government, subsection 

20 (a)(2)(B) shall be applied with respect to any 

21 converted property by substituting ‘4 years’ for 

22 ‘2 years’. 

23 ‘‘(B) FURTHER EXTENSION BY SEC24 RETARY.—The Secretary may extend on a re25 gional basis the period for replacement under 
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1 this section (after the application of subpara2 graph (A)) for such additional time as the Sec3 retary determines appropriate if the weather-re4 lated conditions which resulted in such applica5 tion continue for more than 3 years.’’. 

6 (b) INCOME INCLUSION RULES.—Section 451(e) (re7 lating to special rule for proceeds from livestock sold on 

8 account of drought, flood, or other weather-related condi9 tions) is amended by adding at the end the following new 

10 paragraph: 

11 ‘‘(3) SPECIAL ELECTION RULES.—If section 

12 1033(e)(2) applies to a sale or exchange of livestock 

13 described in paragraph (1), the election under para14 graph (1) shall be deemed valid if made during the 

15 replacement period described in such section.’’. 

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

17 this section shall apply to taxable years beginning after 

18 the date of the enactment of this Act. 

Æ