I 
109TH CONGRESS 
2D SESSION 
H. R. 5932 
To amend the Internal Revenue Code of 1986 to authorize agricultural 
producers to establish and contribute to tax-exempt farm risk manage-
ment accounts in lieu of obtaining federally subsidized crop insurance 
or noninsured crop assistance, to provide for contributions to such ac-
counts by the Secretary of Agriculture, to specify the situations in 
which amounts may be paid to producers from such accounts, and to 
limit the total amount of such distributions to a producer during a 
taxable year, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JULY 27, 2006 
Mr. EVERETT (for himself, Mr. BONNER, and Mr. ROGERS of Alabama) intro-
duced the following bill; which was referred to the Committee on Ways 
and Means, and in addition to the Committee on Agriculture, for a period 
to be subsequently determined by the Speaker, in each case for consider-
ation of such provisions as fall within the jurisdiction of the committee 
concerned 
A BILL 
To amend the Internal Revenue Code of 1986 to authorize 
agricultural producers to establish and contribute to tax- 
exempt farm risk management accounts in lieu of obtain-
ing federally subsidized crop insurance or noninsured 
crop assistance, to provide for contributions to such ac-
counts by the Secretary of Agriculture, to specify the 
situations in which amounts may be paid to producers 
from such accounts, and to limit the total amount of 
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such distributions to a producer during a taxable year, 
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 Risk Manage-
ment Act of 2006’’. 
SEC. 2. FARM RISK MANAGEMENT ACCOUNTS. 
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
additional itemized deductions for individuals) is amended 
by redesignating section 224 as section 225 and by insert-
ing after section 223 the following new section: 
‘‘SEC. 224. FARM RISK MANAGEMENT ACCOUNTS. 
‘‘(a) DEDUCTION ALLOWED.—In the case of a quali-
fied farmer, there shall be allowed as a deduction for the 
taxable year an amount equal to the aggregate amount 
paid in cash during such taxable year by or on behalf of 
such individual to a farm risk management account of 
such individual. 
‘‘(b) MINIMUM CONTRIBUTION REQUIREMENT.—A 
deduction shall not be allowed under subsection (a) for 
the taxable year with respect to an individual if, during 
such taxable year, the aggregate amount contributed by 
such individual to farm risk management accounts of the 
individual is not equal to at least 2 percent of the individ-
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ual’s 3-year average of income derived from farming or 
ranching. 
‘‘(c) ACCOUNT BALANCE LIMITATION.—A deduction 
shall not be allowed under subsection (a) with respect to 
any portion of a contribution to a farm risk management 
account of an individual if such contribution would result 
in the sum of the balances in all such accounts of such 
individual to exceed 150 percent of the individual’s 3-year 
average of income derived from farming or ranching. 
‘‘(d) QUALIFIED FARMER.—For purposes of this sec-
tion, the term ‘qualified farmer’ means, with respect to 
any taxable year, any individual who, during such year— 
‘‘(1) was engaged in the trade or business of 
farming or ranching, 
‘‘(2) has in effect an agreement with the Sec-
retary of Agriculture to accept contributions under 
this section in lieu of— 
‘‘(A) receiving, after the transition period 
of the individual referred to in subsection 
(g)(2), any Federal subsidy toward the pre-
mium of any crop insurance policy, or 
‘‘(B) obtaining noninsured crop assistance 
under section 196 of the Agricultural Market 
Transition Act (7 U.S.C. 7333), and 
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‘‘(3) does not have any federally subsidized crop 
insurance policy after the transition period of the in-
dividual referred to in subsection (g)(2). 
‘‘(e) FARM RISK MANAGEMENT ACCOUNT.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘farm risk man-
agement account’ means a trust created or orga-
nized in the United States as a farm risk manage-
ment account exclusively for the purpose of making 
qualified distributions, but only if the written gov-
erning instrument creating the trust meets the fol-
lowing requirements: 
‘‘(A) No contribution will be accepted un-
less it is in cash. 
‘‘(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 will be in-
vested in securities issued by the United States 
Treasury or in such other low-risk interest- 
bearing securities as are approved by the Sec-
retary. 
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‘‘(D) The assets of the trust will not be 
commingled with other property except in a 
common trust fund or common investment 
fund. 
‘‘(E) The interest of an individual in the 
balance in his account is nonforfeitable. 
‘‘(2) QUALIFIED
DISTRIBUTION.—The term 
‘qualified distribution’ means any amount paid from 
a farm risk management account to the account ben-
eficiary to the extent that such amount when added 
to all other amounts paid from such accounts to 
such beneficiary during the taxable year (other than 
rollover contributions) does not exceed the excess (if 
any) of— 
‘‘(A) 80 percent of such beneficiary’s 3- 
year average of income derived from farming or 
ranching, over 
‘‘(B) such beneficiary’s gross income de-
rived from farming or ranching for the taxable 
year. 
‘‘(3) 3-YEAR
AVERAGE
OF
INCOME
DERIVED 
FROM FARMING OR RANCHING.—The term ‘3-year 
average of income derived from farming or ranching’ 
means, with respect to any individual— 
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‘‘(A) the sum of the individual’s gross in-
come derived from farming or ranching for the 
taxable year and the 2 preceding taxable years, 
divided by 
‘‘(B) the number of taxable years taken 
into account under clause (i) during which such 
individual was engaged in the trade or business 
of farming or ranching. 
‘‘(4) ACCOUNT
BENEFICIARY.—The term ‘ac-
count beneficiary’ means the individual on whose be-
half the farm risk management account was estab-
lished. 
‘‘(5) SPECIAL RULES.— 
‘‘(A) 
FEDERAL
CONTRIBUTIONS.—For 
purposes of this title, any amount paid to a 
farm risk management account by the Secretary 
of Agriculture under subsection (g) shall be in-
cluded in the account beneficiary’s gross income 
in the taxable year for which the amount was 
contributed, whether or not a deduction for 
such payment is allowable under this section to 
the beneficiary. 
‘‘(B) OTHER RULES.—Rules similar to the 
following rules shall apply for purposes of this 
section: 
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‘‘(i) Section 219(d)(2) (relating to no 
deduction for rollovers). 
‘‘(ii) Section 219(f)(3) (relating to 
time when contributions deemed made). 
‘‘(iii) Section 408(g) (relating to com-
munity property laws). 
‘‘(iv) Section 408(h) (relating to cus-
todial accounts). 
‘‘(f) TAX TREATMENT OF ACCOUNTS.— 
‘‘(1) IN GENERAL.—A farm risk management 
account is exempt from taxation under this subtitle 
unless such account has ceased to be a farm risk 
management account. Notwithstanding the pre-
ceding sentence, any such account is subject to the 
taxes imposed by section 511 (relating to imposition 
of tax on unrelated business income of charitable, 
etc. organizations). 
‘‘(2) TERMINATION OF ACCOUNTS.—If the ac-
count beneficiary ceases to engage in the trade or 
business of farming or ranching, such trade or busi-
ness becomes covered under any crop insurance pol-
icy for which a premium subsidy is paid by the Sec-
retary of Agriculture, or the account beneficiary 
seeks noninsured crop assistance under section 196 
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of the Agricultural Market Transition Act (7 U.S.C. 
7333)— 
‘‘(A) all farm risk management accounts of 
such individual shall cease to be such accounts, 
and 
‘‘(B) the balance of all such accounts shall 
be treated as— 
‘‘(i) distributed to such individual, 
and 
‘‘(ii) not paid in a qualified distribu-
tion. 
‘‘(g) FEDERAL CONTRIBUTION TO ACCOUNTS.— 
‘‘(1) 
CONTRIBUTIONS
REQUIRED.—Using 
amounts in the insurance fund established under 
section 516(c) of the Federal Crop Insurance Act (7 
U.S.C. 1516(c)), the Secretary of Agriculture shall 
match the contributions made for a taxable year to 
farm risk management accounts of an individual 
who has entered into the agreement with the Sec-
retary required by subsection (d)(2) in an aggregate 
amount equal to 2 percent of the individual’s 3-year 
average of income derived from farming or ranching. 
‘‘(2) TRANSITIONAL PERIOD.—Notwithstanding 
paragraph (1), during the first 3 taxable years for 
which the Secretary of Agriculture makes contribu-
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tions under such paragraph to farm risk manage-
ment accounts of an individual, the amount contrib-
uted by the Secretary may not exceed— 
‘‘(A) for the first taxable year, 25 percent 
of the amount the Secretary would otherwise 
contribute under paragraph (1) for that taxable 
year, 
‘‘(B) for the second taxable year, 50 per-
cent of the amount the Secretary would other-
wise contribute under paragraph (1) for that 
taxable year, and 
‘‘(C) for the third taxable year, 75 percent 
of the amount the Secretary would otherwise 
contribute under paragraph (1) for that taxable 
year. 
‘‘(3) CROP INSURANCE COVERAGE.—During the 
transition period referred to in paragraph (2) for an 
individual receiving contributions under this sub-
section, the individual shall procure, as a condition 
of receiving the contributions, at least catastrophic 
risk protection provided under section 508(b) of the 
Federal Crop Insurance Act (7 U.S.C. 1508(b)). 
During this period, the individual would be covered 
with any claim at the same level of coverage pur-
chased, but subject to the condition that any claim 
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would first use amounts in the farm risk manage-
ment accounts of an individual before conventional 
crop insurance would make any payment, if nec-
essary. 
‘‘(h) TAX TREATMENT OF DISTRIBUTIONS.— 
‘‘(1) IN GENERAL.—Any amount paid or dis-
tributed out of a farm risk management account 
(other than a rollover contribution described in para-
graph (4)) shall be included in gross income. 
‘‘(2) ADDITIONAL TAX ON NON-QUALIFIED DIS-
TRIBUTIONS.— 
‘‘(A) IN GENERAL.—The tax imposed by 
this chapter on the account beneficiary for any 
taxable year in which there is a payment or dis-
tribution from a farm risk management account 
of such beneficiary which is not a qualified dis-
tribution shall be increased by 15 percent of the 
amount of such payment or distribution which 
is not a qualified distribution. 
‘‘(B) EXCEPTION
FOR
DISABILITY
OR 
DEATH.—Subparagraph (A) shall not apply if 
the payment or distribution is made after the 
account beneficiary becomes disabled within the 
meaning of section 72(m)(7) or dies. 
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‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.— 
‘‘(A) IN
GENERAL.—If any excess con-
tribution is contributed for a taxable year to a 
farm risk management account of an individual, 
paragraph (2) shall not apply to distributions 
from the farm risk management accounts of 
such individual (to the extent such distributions 
do not exceed the aggregate excess contribu-
tions to all such accounts of such individual for 
such year) if— 
‘‘(i) such distribution is received by 
the individual on or before the last day 
prescribed by law (including extensions of 
time) for filing such individual’s return for 
such taxable year, and 
‘‘(ii) such distribution is accompanied 
by the amount of net income attributable 
to such excess contribution. 
Any net income described in clause (ii) shall be 
included in the gross income of the individual 
for the taxable year in which it is received. 
‘‘(B) EXCESS
CONTRIBUTION.—For pur-
poses of subparagraph (A), the term ‘excess 
contribution’ means any contribution (other 
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than a rollover contribution) which is not de-
ductible under this section. 
‘‘(4) ROLLOVER CONTRIBUTION.—An amount is 
described in this paragraph as a rollover contribu-
tion if it meets the requirements of subparagraphs 
(A) and (B). 
‘‘(A) IN GENERAL.—For purposes of this 
section, any amount paid or distributed from a 
farm risk management account to the account 
beneficiary shall be treated as a qualified dis-
tribution to the extent the amount received is 
paid into a farm risk management account for 
the benefit of such beneficiary not later than 
the 60th day after the day on which the bene-
ficiary receives the payment or distribution. 
‘‘(B) LIMITATION.—This paragraph shall 
not apply to any amount described in subpara-
graph (A) received by an individual from a 
farm risk management account if, at any time 
during the 1-year period ending on the day of 
such receipt, such individual received any other 
amount described in subparagraph (A) from a 
farm risk management account which was not 
included in the individual’s gross income be-
cause of the application of this paragraph. 
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