I
106TH CONGRESS
2D SESSION
H. R. 4497
To amend the Internal Revenue Code of 1986 to allow a credit against
income tax for investment by farmers in value-added agricultural property.
IN THE HOUSE OF REPRESENTATIVES
MAY 18, 2000
Mr. TALENT (for himself and Mr. THUNE) 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 allow a
credit against income tax for investment by farmers in
value-added agricultural property.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Farmers’ Value-Added
Agricultural Investment Tax Credit Act’’.
SEC. 2. CREDIT FOR FARMER INVESTMENT IN VALUE-
ADDED AGRICULTURAL PROPERTY.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
‘‘(2) PROPERTY PLACED IN SERVICE BY FARM-
ER-OWNED ENTITY.—
‘‘(A) IN GENERAL.—In the case of prop-
erty placed in service by a farmer-owned entity,
the credit determined under this section shall
not exceed the sum of the eligible person’s cred-
itable investments in such entity as of the date
such property is placed in service.
‘‘(B) 
CREDITABLE
INVESTMENTS.—For
purposes of subparagraph (A), the term ‘cred-
itable investments’ means, with respect to any
property placed in service by a farmer-owned
entity, the aggregate qualified investments
made by the eligible person in such entity, re-
duced (but not below zero) by the sum of—
‘‘(i) the amount of the aggregate
qualified investments made by such person
in such entity which were taken into ac-
count under this section with respect to
property previously placed in service by
such entity, and
‘‘(ii) the amount of the aggregate
qualified investments made by such person
in all other farmer-owned entities which
were taken into account under this section
with respect to property previously placed
in service by such other entities.
‘‘(C) LIMITATION.—For purposes of this
paragraph, the aggregate qualified investments
made by the eligible person which may be taken
into account for any taxable year shall not ex-
ceed $30,000.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED VALUE-ADDED AGRICULTURAL
PROPERTY.—The term ‘qualified value-added agri-
cultural property’ means property—
‘‘(A) which is used to add value to a good
or product, suitable for food or nonfood use, de-
rived in whole or in part from organic matter
which is available on a renewable basis, includ-
ing agricultural crops and agricultural wastes
and residues, wood wastes and residues, and
domesticated animal wastes,
‘‘(B)(i) to which section 168 applies with-
out regard to any useful life, or
‘‘(ii) with respect to which depreciation (or
amortization in lieu of depreciation) is allowable
and having a useful life (determined as of the
time such property is placed in service) of 3
years or more, and
‘‘(C) which is owned and operated by an
eligible person or a farmer-owned entity.
‘‘(2) ELIGIBLE PERSON.—
‘‘(A) IN GENERAL.—The term ‘eligible per-
son’ means a person who materially participates
during the taxable year in an eligible farming
business.
‘‘(B) 
MATERIAL
PARTICIPATION.—For
purposes of subparagraph (A), the determina-
tion of whether a person materially participates
in the trade or business of farming shall be
made in a manner similar to the manner in
which such determination is made under section
2032A(e)(6). In the case that the person is a
corporation, cooperative, partnership, estate, or
trust, such determination shall be made at the
shareholder, partner, or beneficial interests level
(as the case may be).
‘‘(C) ELIGIBLE FARMING BUSINESS.—For
purposes of subparagraph (A), the term ‘eligible
farming business’ means a farming business (as
defined in section 263A(e)(4)) which is not a
passive activity (within the meaning of section
469(c)).
‘‘(3) FARMER-OWNED ENTITY.—
‘‘(A) IN
GENERAL.—The term ‘farmer-
owned entity’ means—
‘‘(i) a corporation (including an S cor-
poration) in which eligible persons own 50
percent or more of the total voting power
of the stock and 50 percent or more (in
value) of the stock,
‘‘(ii) a partnership in which eligible
persons own 50 percent or more of the
total voting power of the profits interest
and 50 percent or more (in value) of the
profits interest, and
‘‘(iii) a cooperative in which eligible
persons own 50 percent or more of the
total voting power of the member patron-
age interests and 50 percent or more (in
value) of the member patronage interests.
‘‘(B) 
CONSTRUCTIVE
OWNERSHIP
RULES.—For purposes of subparagraph (A),
rules 
similar 
to 
the 
rules 
of 
section
263A(e)(2)(B) shall apply; except that, in ap-
plying such rules, the members of an individ-
ual’s family shall be the individuals described in
subparagraph (C).
‘‘(C) MEMBERS OF FAMILY.—The family
of any individual shall include only his spouse
and children, grandchildren, and great grand-
children (whether by the whole or half blood),
and the spouses of his children, grandchildren,
and great grandchildren, who reside in the
same household or jointly operate farming busi-
nesses (as defined in section 263A(e)(4)). For
purposes of the preceding sentence, a child who
is legally adopted, or who is placed with the
taxpayer by an authorized placement agency for
adoption by the taxpayer, shall be treated as a
child by blood.
‘‘(4) QUALIFIED INVESTMENTS.—
‘‘(A) IN
GENERAL.—The term ‘qualified
investments’ means a payment of cash for the
purchase of a qualified equity interest in a
farmer-owned entity.
‘‘(B) QUALIFIED EQUITY INTEREST.—The
term ‘qualified equity interest’ means—
‘‘(i) any stock in a domestic corpora-
tion if such stock is acquired by the tax-
payer after December 31, 2000, and before
January 1, 2007, at its original issue (di-
rectly or through an underwriter) from the
corporation solely in exchange for cash,
‘‘(ii) any capital or profits interest in
a domestic partnership if such interest is
acquired by the taxpayer after December
31, 2000, and before January 1, 2007, and
‘‘(iii) any patronage interest in a co-
operative if such interest is acquired by the
taxpayer after December 31, 2000, and be-
fore January 1, 2007.
Rules similar to the rules of section 1202(c)(3)
shall apply for purposes of this paragraph.
‘‘(d) SPECIAL
RULES.—For purposes of this
section—
‘‘(1) TREATMENT OF MARRIED INDIVIDUALS.—
In the case of a separate return by a married indi-
vidual (as defined in section 7703), subsection
(b)(3)(A) shall be applied by substituting ‘$15,000’
for ‘$30,000’.
‘‘(2) APPLICABLE
RULES.—Under regulations
prescribed by the Secretary—
‘‘(A) ALLOCATION OF CREDIT IN THE CASE
OF ESTATES AND TRUSTS.—Rules similar to the
rules of subsection (d) of section 52 shall apply.
‘‘(B) CERTAIN
PROPERTY
NOT
ELIGI-
BLE.—Rules similar to the rules of section
50(b) shall apply.
‘‘(3) BASIS
ADJUSTMENT.—For purposes of
this subtitle, if a credit is allowed under this section
to any eligible person with respect to qualified value-
added agricultural property, the basis of such prop-
erty shall be reduced by the amount of the credit so
allowed and increased by the amount of recapture
under subsection (e).
‘‘(e) RECAPTURE IN THE CASE OF CERTAIN DISPOSI-
TIONS.—
‘‘(1) IN
GENERAL.—Under regulations pre-
scribed by the Secretary, rules similar to the rules
of section 50(a) shall apply with respect to an eligi-
ble person if, within the 5-year period beginning on
the date qualified value-added agricultural property
with respect to which such person was allowed a
credit under subsection (a) is originally placed in
service—
‘‘(A) such property ceases to be qualified
for purposes of this section,
‘‘(B) the eligible person or the farmer-
owned entity (as the case may be) disposes of
all or part of such property, or
‘‘(C) the eligible person or the farmer-
owned entity (as the case may be) ceases to be
an eligible person or farmer-owned entity for
purposes of this section.
‘‘(2) SPECIAL RULES IN EVENT OF DEATH.—
‘‘(A) IN GENERAL.—The period in para-
graph (1) shall be suspended with respect to an
eligible person for the 2-year period beginning
on the date of death of such person.
‘‘(B) HEIRS
WHO
ARE
ELIGIBLE
PER-
SONS.—In the case that an heir of an eligible
person is also an eligible person, neither para-
graph (1) nor subparagraph (A) of this para-
graph (unless elected by such heir) shall apply
with respect to the transfer of property to such
heir.
‘‘(f) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section.
‘‘(g) TERMINATION.—This section shall not apply to
property placed in service after December 31, 2006.’’.
(b) CREDIT ALLOWED AS PART OF GENERAL BUSI-
NESS CREDIT.—Section 38(b) of such Code (defining cur-
rent year business credit) is amended by striking ‘‘plus’’
at the end of paragraph (11), by striking the period at
the end of paragraph (12) and inserting ‘‘, plus’’, and by
adding at the end the following new paragraph:
‘‘(13) in the case of an eligible person (as de-
fined in section 45D(c)), the value-added agricul-
tural property investment credit determined under
section 45D(a).’’.
(c) CREDIT ALLOWABLE AGAINST MINIMUM TAX.—
(1) IN GENERAL.—Subsection (c) of section 38
of such Code is amended by redesignating paragraph
(3) as paragraph (4) and by inserting after para-
graph (2) the following new paragraph:
‘‘(3) VALUE-ADDED AGRICULTURAL PROPERTY
INVESTMENT CREDIT ALLOWED AGAINST MINIMUM
TAX.—
‘‘(A) IN
GENERAL.—The amount deter-
mined under paragraph (1)(A) shall be reduced
by the portion of the value-added agricultural
property investment credit not used against the
normal limitation.
‘‘(B) PORTION OF VALUE-ADDED AGRICUL-
TURAL
PROPERTY
INVESTMENT
CREDIT
NOT
USED AGAINST NORMAL LIMITATION.—For pur-
poses of subparagraph (A), the portion of the
value-added agricultural property investment
credit not used against the normal limitation is
the excess (if any) of—
‘‘(i) the portion of the credit allowable
under subsection (a) which is attributable
to the value-added agricultural property in-
vestment credit, over
‘‘(ii) the limitation of paragraph (1)
(determined without regard to this para-
graph) reduced by the portion of the credit
under subsection (a) which is not so attrib-
utable.’’.
(2) CONFORMING AMENDMENT.—Subclause (II)
of section 38(c)(2)(A)(ii) of such Code is amended
by inserting ‘‘or the value-added agricultural prop-
erty investment credit’’ after ‘‘employment credit’’.
(d) LIMITATION ON CARRYBACK.—Subsection (d) of
section 39 of such Code is amended by adding at the end
thereof the following new paragraph:
‘‘(9) NO CARRYBACK OF VALUE-ADDED AGRI-
CULTURAL PROPERTY INVESTMENT CREDIT BEFORE
EFFECTIVE DATE.—No portion of the unused busi-
ness credit for any taxable year which is attributable
to the credit determined under section 45D may be
carried back to any taxable year ending before the
date of the enactment of section 45D.’’.
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS
CREDITS.—Subsection (c) of section 196 of such Code is
amended by striking ‘‘and’’ at the end of paragraph (7),
by striking the period at the end of paragraph (8) and
inserting ‘‘, and’’, and by adding after paragraph (8) the
following new paragraph:
‘‘(9) the value-added agricultural property in-
vestment credit determined under section 45D.’’.
(f) BASIS ADJUSTMENT.—Subsection (a) of section
1016 of such Code is amended by striking ‘‘and’’ at the
end of paragraph (26), by striking the period at the end
of paragraph (27) and inserting ‘‘; and’’, and by adding
at the end the following new paragraph:
‘‘(28) to the extent provided in section
45D(d)(3), in the case of payments with respect to
which a credit has been allowed under section 38.’’.
(g) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
of such Code is amended by adding at the end thereof
the following new section:
‘‘Sec. 45D. Value-added agricultural property investment cred-
it.’’.
(h) EFFECTIVE DATE.—The amendments made by
this section shall apply to qualified investments (as defined
in section 45D(c)(5) of the Internal Revenue Code of 1986