I
105TH CONGRESS
2D SESSION
H. R. 3659
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
APRIL 1, 1998
Mr. HULSHOF (for himself, Mrs. THURMAN, Mr. SMITH of Oregon, Mr. COM-
BEST, Mr. BUNNING of Kentucky, Mr. LEWIS of Georgia, Mr. EWING,
Mr. DOOLEY
of California, Mr. HOUGHTON, Mr. HERGER, Mr.
CHRISTENSEN, Mr. POMBO, Mrs. CLAYTON, Mr. HOSTETTLER, Mr.
HOLDEN, Mr. ENGLISH of Pennsylvania, Mr. WATKINS, Mr. WELLER,
Mr. BISHOP, Mr. BLUNT, Mrs. EMERSON, Mr. BALDACCI, Mr. THUNE,
Mr. CHAMBLISS, Mr. BOYD, Mr. FOLEY, Mr. CLYBURN, Mr. MCDADE,
Mr. KANJORSKI, Mr. BOB SCHAFFER, Mr. EDWARDS, Mr. MORAN of
Kansas, Mr. SOUDER, Mr. MARTINEZ, Mr. SCARBOROUGH, and Mr.
HUTCHINSON) 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.
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 ‘‘Farm and Ranch Risk
Management Act’’.
‘‘(d) FARRM ACCOUNT.—For purposes of this sec-
tion—
‘‘(1) IN
GENERAL.—The term ‘FARRM Ac-
count’ means a trust created or organized in the
United States for the exclusive benefit of the tax-
payer, but only if the written governing instrument
creating the trust meets the following requirements:
‘‘(A) No contribution will be accepted for
any taxable year in excess of the amount al-
lowed as a deduction under subsection (a) for
such year.
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which such person will ad-
minister the trust will be consistent with the re-
quirements of this section.
‘‘(C) The assets of the trust consist en-
tirely of cash or of obligations which have ade-
quate stated interest (as defined in section
1274(c)(2)) and which pay such interest not
less often than annually.
‘‘(D) All income of the trust is distributed
currently to the grantor.
‘‘(E) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(2) ACCOUNT TAXED AS GRANTOR TRUST.—
The grantor of a FARRM Account shall be treated
for purposes of this title as the owner of such Ac-
count and shall be subject to tax thereon in accord-
ance with subpart E of part I of subchapter J of
this chapter (relating to grantors and others treated
as substantial owners).
‘‘(e) INCLUSION OF AMOUNTS DISTRIBUTED.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), there shall be includible in the gross in-
come of the taxpayer for any taxable year—
‘‘(A) any amount distributed from a
FARRM Account of the taxpayer during such
taxable year, and
‘‘(B) any deemed distribution under—
‘‘(i) subsection (f)(1) (relating to de-
posits not distributed within 5 years),
‘‘(ii) subsection (f)(2) (relating to ces-
sation in eligible farming business), and
‘‘(iii) subparagraph (A) or (B) of sub-
section (f)(3) (relating to prohibited trans-
actions and pledging account as security).
‘‘(2) EXCEPTIONS.—Paragraph (1)(A) shall not
apply to—
‘‘(A) any distribution to the extent attrib-
utable to income of the Account, and
‘‘(B) the distribution of any contribution
paid during a taxable year to a FARRM Ac-
count to the extent that such contribution ex-
ceeds the limitation applicable under subsection
(b) if requirements similar to the requirements
of section 408(d)(4) are met.
For purposes of subparagraph (A), distributions
shall be treated as first attributable to income and
then to other amounts.
‘‘(3) EXCLUSION
FROM
SELF-EMPLOYMENT
TAX.—Amounts included in gross income under this
subsection shall not be included in determining net
earnings from self-employment under section 1402.
‘‘(f) SPECIAL RULES.—
‘‘(1) TAX
ON
DEPOSITS
IN
ACCOUNT
WHICH
ARE NOT DISTRIBUTED WITHIN 5 YEARS.—
‘‘(A) IN GENERAL.—If, at the close of any
taxable year, there is a nonqualified balance in
any FARRM Account—
‘‘(i) there shall be deemed distributed
from such Account during such taxable
year an amount equal to such balance, and
‘‘(ii) the taxpayer’s tax imposed by
this chapter for such taxable year shall be
increased by 10 percent of such deemed
distribution.
The preceding sentence shall not apply if an
amount equal to such nonqualified balance is
distributed from such Account to the taxpayer
before the due date (including extensions) for
filing the return of tax imposed by this chapter
for such year (or, if earlier, the date the tax-
payer files such return for such year).
‘‘(B) NONQUALIFIED BALANCE.—For pur-
poses of subparagraph (A), the term ‘non-
qualified balance’ means any balance in the Ac-
count on the last day of the taxable year which
is attributable to amounts deposited in such Ac-
count before the 4th preceding taxable year.
‘‘(C) ORDERING RULE.—For purposes of
this paragraph, distributions from a FARRM
Account shall be treated as made from deposits
in the order in which such deposits were made,
beginning with the earliest deposits. For pur-
poses of the preceding sentence, income of such
an Account shall be treated as a deposit made
on the date such income is received by the Ac-
count.
‘‘(2) CESSATION IN ELIGIBLE FARMING BUSI-
NESS.—At the close of the first disqualification pe-
riod after a period for which the taxpayer was en-
gaged in an eligible farming business, there shall be
deemed distributed from the FARRM Account (if
any) of the taxpayer an amount equal to the balance
in such Account at the close of such disqualification
period. For purposes of the preceding sentence, the
term ‘disqualification period’ means any period of 2
consecutive taxable years for which the taxpayer is
not engaged in an eligible farming business.
‘‘(3) CERTAIN RULES TO APPLY.—Rules similar
to the following rules shall apply for purposes of this
section:
‘‘(A) Section 408(e)(2) (relating to loss of
exemption of account where individual engages
in prohibited transaction).
‘‘(B) Section 408(e)(4) (relating to effect
of pledging account as security).
‘‘(C) Section 408(g) (relating to commu-
nity property laws).
‘‘(D) Section 408(h) (relating to custodial
accounts).
‘‘(4) TIME WHEN PAYMENTS DEEMED MADE.—
For purposes of this section, a taxpayer shall be
deemed to have made a payment to a FARRM Ac-
count on the last day of a taxable year if such pay-
ment is made on account of such taxable year and
is made within 31⁄2 months after the close of such
taxable year.
‘‘(5) INDIVIDUAL.—For purposes of this sec-
tion, the term ‘individual’ shall not include an estate
or trust.
‘‘(g) REPORTS.—The trustee of a FARRM Account
shall make such reports regarding such Account to the
Secretary and to the person for whose benefit the Account
is maintained with respect to contributions, distributions,
and such other matters as the Secretary may require
under regulations. The reports required by this subsection
shall be filed at such time and in such manner and fur-
nished to such persons at such time and in such manner
as may be required by those regulations.’’.
tributed to the Account under section 468C(b) for such
taxable year. For purposes of this subsection, any con-
tribution which is distributed out of the FARRM Account
in a distribution to which section 468C(e)(2)(B) applies
shall be treated as an amount not contributed.’’.
(3) The section heading for section 4973 of
such Code is amended to read as follows:
‘‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN AC-
COUNTS, ANNUITIES, ETC.’’.
(4) The table of sections for chapter 43 of such
Code is amended by striking the item relating to sec-
tion 4973 and inserting the following new item:
‘‘Sec. 4973. Excess contributions to certain accounts, annuities,
etc.’’.
(d) TAX ON PROHIBITED TRANSACTIONS.—
(1) Subsection (c) of section 4975 of such Code
(relating to prohibited transactions) is amended by
adding at the end the following new paragraph:
‘‘(6) SPECIAL RULE FOR FARRM ACCOUNTS.—
A person for whose benefit a FARRM Account
(within the meaning of section 468C(d)) is estab-
lished shall be exempt from the tax imposed by this
section with respect to any transaction concerning
such Account (which would otherwise be taxable
under this section) if, with respect to such trans-
action, the account ceases to be a FARRM Account
by reason of the application of section 468C(f)(3)(A)
to such Account.’’.
(2) Paragraph (1) of section 4975(e) of such
Code is amended by redesignating subparagraphs
(E) and (F) as subparagraphs (F) and (G), respec-
tively, and by inserting after subparagraph (D) the
following new subparagraph:
‘‘(E) a FARRM Account described in sec-
tion 468C(d),’’.
(e) FAILURE TO PROVIDE REPORTS ON FARRM AC-
COUNTS.—Paragraph (2) of section 6693(a) of such Code
(relating to failure to provide reports on certain tax-fa-
vored accounts or annuities) is amended by redesignating
subparagraphs (C) and (D) as subparagraphs (D) and
(E), respectively, and by inserting after subparagraph (B)
the following new subparagraph:
‘‘(C) section 468C(g) (relating to FARRM
Accounts).’’.
(f) CLERICAL AMENDMENT.—The table of sections
for subpart C of part II of subchapter E of chapter 1 of
such Code is amended by inserting after the item relating
to section 468B the following new item:
‘‘Sec. 468C. Farm and Ranch Risk Management Accounts.’’.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
Æ