I 
109TH CONGRESS 
1ST SESSION 
H. R. 142 
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 
JANUARY 4, 2005 
Mr. MCHUGH 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 
a tax credit for farmers’ investments in value-added agri-
culture. 
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 
Value-Added Investment Tax Credit Act of 2005’’. 
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
1986 (relating to business related credits) is amended by 
adding at the end the following new section: 
‘‘SEC. 45J. 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 investments 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, 2004, and before 
January 1, 2011, 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, 2004, and before January 1, 2011, and 
‘‘(iii) any patronage interest in a co-
operative if such interest is acquired by the 
taxpayer after December 31, 2004, and be-
fore January 1, 2011. 
Rules similar to the rules of section 1202(c)(3) 
shall apply for purposes of this paragraph. 
‘‘(d) SPECIAL RULES.—For purposes of this sec-
tion— 
‘‘(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, 2010.’’. 
(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 (18), by striking the period at
the end of paragraph (19) and inserting ‘‘, plus’’, and by 
adding at the end the following new paragraph: 
‘‘(20) in the case of an eligible person (as de-
fined in section 45J(c)), the value-added agricultural 
property investment credit determined under section 
45J(a).’’. 
(c) CREDIT ALLOWABLE AGAINST MINIMUM TAX.— 
(1) IN
GENERAL.—Paragraph (3) of section 
38(c) of such Code is amended— 
(A) by inserting ‘‘AND VALUE-ADDED AGRI-
CULTURAL
PROPERTY
CREDIT’’ after ‘‘EM-
PLOYEE CREDIT’’ in the heading, 
(B) by inserting ‘‘and the value-added ag-
ricultural property credit’’ after ‘‘employee 
credit’’ each place it appears in subparagraph 
(A), and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(C) VALUE-ADDED AGRICULTURAL PROP-
ERTY
CREDIT.—For purposes of this sub-
section, the term ‘value-added agricultural prop-
erty credit’ means the credit determined under 
section 45J.’’ 
(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 credit’’ after ‘‘employment credit’’. 
(d) DEDUCTION FOR CERTAIN UNUSED BUSINESS 
CREDITS.—Subsection (c) of section 196 of such Code is 
amended by striking ‘‘and’’ at the end of paragraph (11), 
by striking the period at the end of paragraph (12) and 
inserting ‘‘, and’’, and by adding after paragraph (12) the 
following new paragraph: 
‘‘(13) the value-added agricultural property in-
vestment credit determined under section 45J.’’. 
(e) BASIS ADJUSTMENT.—Subsection (a) of section 
1016 of such Code is amended by striking ‘‘and’’ at the 
end of paragraph (30), by striking the period at the end 
of paragraph (31) and inserting ‘‘; and’’, and by adding 
at the end the following new paragraph: 
‘‘(32) to the extent provided in section 
45J(d)(3), in the case of payments with respect to 
which a credit has been allowed under section 38.’’. 
(f) 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 item: 
‘‘Sec. 45J. Value-added agricultural property investment credit.’’. 
(g) EFFECTIVE DATE.—The amendments made by 
this section shall apply to qualified investments (as defined 
in section 45J(c)(5) of the Internal Revenue Code of 1986,
as added by this section) made, and property placed in 
service, after December 31, 2004. 
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