I
107TH CONGRESS
1ST SESSION
H. R. 2402
To provide for grants to assist value-added agricultural businesses, and to
amend the Internal Revenue Code of 1986 to provide a tax credit
for farmers’ investments in value-added agriculture.
IN THE HOUSE OF REPRESENTATIVES
JUNE 28, 2001
Mr. MCHUGH introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committee on Agri-
culture, for a period to be subsequently determined by the Speaker, in
each case for consideration of such provisions as fall within the jurisdic-
tion of the committee concerned
A BILL
To provide for grants to assist value-added agricultural busi-
nesses, and to amend the Internal Revenue Code of
1986 to provide a tax credit for farmers’ investments
in value-added agriculture.
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 ‘‘Agricultural Producers
Marketing Assistance Act’’.
TITLE I—VALUE-ADDED
AGRICULTURE
SEC. 
101. 
AGRICULTURE 
INNOVATION 
CENTER 
DEM-
ONSTRATION PROGRAM.
(a) PURPOSES.—The purposes of this section are to
carry out a demonstration program under which agricul-
tural producers are provided—
(1) technical assistance, including engineering
services, applied research, scale production, and
similar services to enable the producers to establish
businesses for further processing of agricultural
products;
(2) marketing, market development, and busi-
ness planning;
(3) overall organizational, outreach, and devel-
opment assistance to increase the viability, growth,
and sustainability of value-added agricultural busi-
nesses.
(b) NATURE OF PROGRAM.—The Secretary of Agri-
culture (in this section referred to as the ‘‘Secretary’’)
shall—
(1) make grants to eligible applicants for the
purposes of enabling the applicants to obtain the as-
sistance described in subsection (a); and
(2) provide assistance to eligible applicants
through the research and technical services of the
Department of Agriculture.
(c) ELIGIBILITY REQUIREMENTS.—
(1) IN GENERAL.—An applicant shall be eligible
for a grant and assistance described in subsection
(b) to establish an Agriculture Innovation Center
if—
(A) the applicant—
(i) has provided services similar to
those described in subsection (a); or
(ii) shows the capability of providing
the services;
(B) the application of the applicant for the
grant and assistance sets forth a plan, in ac-
cordance with regulations which shall be pre-
scribed by the Secretary, outlining support of
the applicant in the agricultural community, the
technical and other expertise of the applicant,
and the goals of the applicant for increasing
and improving the ability of local producers to
develop markets and processes for value-added
agricultural products;
(C) the applicant demonstrates that re-
sources (in cash or in kind) of definite value are
available, or have been committed to be made
available, to the applicant, to increase and im-
prove the ability of local producers to develop
markets and processes for value-added agricul-
tural products; and
(D) the applicant meets the requirement of
paragraph (2).
(2) BOARD OF DIRECTORS.—The requirement
of this paragraph is that the applicant shall have a
board of directors comprised of representatives of
the following groups:
(A) The 2 general agricultural organiza-
tions with the greatest number of members in
the State in which the applicant is located.
(B) The Department of Agriculture or
similar State organization or department, for
the State.
(C) Organizations representing the 4 high-
est grossing commodities produced in the State,
according to annual gross cash sales.
(d) GRANTS AND ASSISTANCE.—
(1) IN GENERAL.—Subject to the availability of
appropriations, the Secretary shall make annual
grants to eligible applicants under this section, each
of which grants shall not exceed the lesser of—
(A) $1,000,000; or
(B) twice the dollar value of the resources
(in cash or in kind) that the applicant has dem-
onstrated are available, or have been committed
to be made available, to the applicant in accord-
ance with subsection (c)(1)(C).
(2) INITIAL LIMITATION.—In the first year of
the demonstration program under this section, the
Secretary shall make grants under this section, on a
competitive basis, to not more than 10 eligible appli-
cants.
(3) EXPANSION
OF
DEMONSTRATION
PRO-
GRAM.—In the second year of the demonstration
program under this section, the Secretary may make
grants under this section to not more than 10 eligi-
ble applicants, in addition to any entities to which
grants are made under paragraph (2) for such year.
(4) STATE LIMITATION.—In the first 3 years of
the demonstration program under this section, the
Secretary shall not make a Agricultural Innovation
Center Demonstration Program grant under this
section to more than 1 entity in any State.
(e) USE OF FUNDS.—An entity to which a grant is
made under this section may use the grant only for the
following purposes:
(1) Applied research.
(2) Consulting services.
(3) Office equipment.
(4) Hiring of employees, at the discretion of the
board of directors of the entity.
(5) The making of matching grants, each of
which shall be not more than $5,000, to agricultural
producers, so long as the aggregate amount of all
such matching grants shall be not more than
$50,000.
(6) Legal services.
(f) LIMITATIONS ON AUTHORIZATION OF APPROPRIA-
TIONS.—For grants and assistance under this section,
there are authorized to be appropriated to the Secretary
not more than—
(1) $10,000,000 for fiscal year 2002;
(2) $20,000,000 for each of fiscal years 2003
and 2004.
(g) REPORT ON BEST PRACTICES.—
(1) EFFECTS
ON
THE
AGRICULTURAL
SEC-
TOR.—The Secretary shall utilize $300,000 per year
of the funds appropriated pursuant to this section to
support research at a land-grant university into the
effects of value-added projects on agricultural pro-
ducers and the commodity markets. The research
should systematically examine possible effects on de-
mand for agricultural commodities, market prices,
farm income, and Federal outlays on commodity
programs using linked, long-term, global projections
of the agricultural sector.
(2) DEPARTMENT OF AGRICULTURE.—Not later
than 3 years after the first 10 grants are made
under this section, the Secretary shall prepare and
submit to the Committee on Agriculture, Nutrition,
and Forestry of the Senate and to the Committee on
Agriculture of the House of Representatives a writ-
ten report on the effectiveness of the demonstration
program conducted under this section at improving
the production of value-added agricultural products
and on the effects of the program on the economic
viability of the producers, which shall include the
best practices and innovations found at each of the
Agriculture Innovation Centers established under the
demonstration program under this section, and de-
tail the number and type of agricultural projects as-
sisted, and the type of assistance provided, under
this section.
TITLE 
II—FARMERS’ 
VALUE-
ADDED 
AGRICULTURAL 
IN-
VESTMENT TAX CREDIT
SEC. 201. 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
1986 (relating to business related credits) is amended by
adding at the end the following new section:
‘‘SEC. 45E. VALUE-ADDED AGRICULTURAL PROPERTY IN-
VESTMENT CREDIT.
‘‘(a) GENERAL RULE.—For purposes of section 38,
in the case of a taxpayer who is—
‘‘(1) an eligible person, or
‘‘(2) a farmer-owned entity,
the value-added agricultural property investment credit
determined under this section for any taxable year is 50
percent of the basis of any qualified value-added agricul-
tural property placed in service during the taxable year.
In the case of a farmer-owned entity, such credit shall be
allocated on a pro rata basis among eligible persons hold-
ing qualified interests in such entity as of the last day
of such taxable year.
‘‘(b) MAXIMUM CREDIT.—For purposes of subsection
(a)—
‘‘(1) PROPERTY PLACED IN SERVICE BY ELIGI-
BLE PERSON.—In the case of property placed in
service during a taxable year by an eligible person,
the credit determined under this section for such
year shall not exceed $30,000, reduced by the
amount of the creditable investments allowed for the
taxable year under paragraph (2).
‘‘(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 (12), by striking the period at
the end of paragraph (13) and inserting ‘‘, plus’’, and by
adding at the end the following new paragraph:
‘‘(14) in the case of an eligible person (as de-
fined in section 45E(c)), the value-added agricul-
tural property investment credit determined under
section 45E(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:
‘‘(10) 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 45E may be
carried back to any taxable year ending before the
date of the enactment of section 45E.’’.
(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 (8),
by striking the period at the end of paragraph (9) and
inserting ‘‘, and’’, and by adding after paragraph (9) the
following new paragraph:
‘‘(10) the value-added agricultural property in-
vestment credit determined under section 45E.’’.
(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
45E(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: