I 

108TH CONGRESS 

1ST SESSION H. R. 927

To amend the Internal Revenue Code of 1986 to provide for Farm and 

Ranch Risk Management Accounts, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 26, 2003

Mr. HULSHOF (for himself and Mr. SANDLIN) 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 

for Farm and Ranch Risk Management 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 ‘‘Farm and Ranch Risk 

5 Management Act’’. 

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

7 (a) IN GENERAL.—Subpart C of part II of sub8 chapter E of chapter 1 of the Internal Revenue Code of 

9 1986 (relating to taxable year for which deductions taken) 

10 is amended by inserting after section 468B the following: 
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1 ‘‘SEC. 468C. FARM AND RANCH RISK MANAGEMENT AC2 COUNTS. 

3 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi4 vidual engaged in an eligible farming business or commer5 cial fishing, there shall be allowed as a deduction for any 

6 taxable year the amount paid in cash by the taxpayer dur7 ing the taxable year to a Farm and Ranch Risk Manage8 ment Account (hereinafter referred to as the ‘FARRM Ac9 count’). 

10 ‘‘(b) LIMITATION.—

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

12 taxpayer may pay into the FARRM Account for any 

13 taxable year shall not exceed 20 percent of so much 

14 of the taxable income of the taxpayer (determined 

15 without regard to this section) which is attributable 

16 (determined in the manner applicable under section 

17 1301) to any eligible farming business or commercial 

18 fishing. 

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

20 FARRM Account may not be used to purchase, 

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

22 to any fishery, or otherwise contribute to the over23 capitalization of any fishery. The Secretary of Com24 merce shall implement regulations to enforce this 

25 paragraph. 
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1 ‘‘(c) ELIGIBLE BUSINESSES.—For purposes of this 

2 section—

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

4 ‘eligible farming business’ means any farming busi5 ness (as defined in section 263A(e)(4)) which is not 

6 a passive activity (within the meaning of section 

7 469(c)) of the taxpayer. 

8 ‘‘(2) COMMERCIAL FISHING.—The term ‘com9 mercial fishing’ has the meaning given such term by 

10 section (3) of the Magnuson-Stevens Fishery Con11 servation and Management Act (16 U.S.C. 1802) 

12 but only if such fishing is not a passive activity 

13 (within the meaning of section 469(c)) of the tax14 payer. 

15 ‘‘(d) FARRM ACCOUNT.—For purposes of this sec16 tion—

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 BUSINESS.—At 

12 the close of the first disqualification period after a 

13 period for which the taxpayer was engaged in an eli14 gible farming business or commercial fishing, there 

15 shall be deemed distributed from the FARRM Ac16 count of the taxpayer an amount equal to the bal17 ance in such Account (if any) at the close of such 

18 disqualification period. For purposes of the pre19 ceding sentence, the term ‘disqualification period’ 

20 means any period of 2 consecutive taxable years for

21 which the taxpayer is not engaged in an eligible 

22 farming business or commercial fishing. 

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

24 to the following rules shall apply for purposes of this 

25 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 of such Code 

15 (relating to tax on excess contributions to certain 

16 tax-favored accounts and annuities) is amended by 

17 striking ‘‘or’’ at the end of paragraph (3), by redes18 ignating paragraph (4) as paragraph (5), and by in19 serting after paragraph (3) the following: 

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

21 section 468C(d)), or’’. 

22 (2) Section 4973 of such Code is amended by 

23 adding at the 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 (3) The section heading for section 4973 of 

11 such Code is amended to read as follows: 

12 ‘‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN AC13 COUNTS, ANNUITIES, ETC.’’. 

14 (4) The table of sections for chapter 43 of such 

15 Code is amended by striking the item relating to sec16 tion 4973 and inserting the following:

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

etc.’’.

17 (c) TAX ON PROHIBITED TRANSACTIONS.—

18 (1) Subsection (c) of section 4975 of such Code 

19 (relating to tax on prohibited transactions) is 

20 amended by adding at the end the following: 

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

22 A person for whose benefit a FARRM Account 

23 (within the meaning of section 468C(d)) is estab24 lished shall be exempt from the tax imposed by this 
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1 section with respect to any transaction concerning 

2 such account (which would otherwise be taxable 

3 under this section) if, with respect to such trans4 action, the account ceases to be a FARRM Account 

5 by reason of the application of section 

6 468C(f )(3)(A) to such account.’’. 

7 (2) Paragraph (1) of section 4975(e) of such 

8 Code is amended by redesignating subparagraphs 

9 (E) and (F) as subparagraphs (F) and (G), respec10 tively, and by inserting after subparagraph (D) the 

11 following: 

12 ‘‘(E) a FARRM Account described in sec13 tion 468C(d),’’. 

14 (d) FAILURE TO PROVIDE REPORTS ON FARRM AC15 COUNTS.—Paragraph (2) of section 6693(a) of such Code 

16 (relating to failure to provide reports on certain tax-fa17 vored accounts or annuities) is amended by redesignating 

18 subparagraphs (C) and (D) as subparagraphs (D) and 

19 (E), respectively, and by inserting after subparagraph (B) 

20 the following: 

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

22 Accounts),’’. 

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

24 for subpart C of part II of subchapter E of chapter 1 of 
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1 such Code is amended by inserting after the item relating 

2 to section 468B the following:

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

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

4 this section shall apply to taxable years beginning after 

5 the date of the enactment of this Act.

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