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Q: SECTION 1. SHORT TITLE.

This Act may be cited as the ''Farm and Ranch Risk Management
Act''.

SEC. 2. FARM AND RANCH RISK MANAGEMENT ACCOUNTS.

(a) In General.--Subpart C of part II of subchapter E of chapter 1
of the Internal Revenue Code of 1986 (relating to taxable year for
which deductions taken) is amended by inserting after section 468B the
following:

''SEC. 468C. FARM AND RANCH RISK MANAGEMENT ACCOUNTS.

''(a) Deduction Allowed.--In the case of an individual engaged in
an eligible farming business or commercial fishing, there shall be
allowed as a deduction for any taxable year the amount paid in cash by
the taxpayer during the taxable year to a Farm and Ranch Risk
Management Account (hereinafter referred to as the 'FARRM Account').
''(b) Limitation.--
''(1) Contributions.--The amount which a taxpayer may pay
into the FARRM Account for any taxable year shall not exceed 20
percent of so much of the taxable income of the taxpayer
(determined without regard to this section) which is
attributable (determined in the manner applicable under section
1301) to any eligible farming business or commercial fishing.
''(2) Distributions.--Distributions from a FARRM Account
may not be used to purchase, lease, or finance any new fishing
vessel, add capacity to any fishery, or otherwise contribute to
the overcapitalization of any fishery. The Secretary of
Commerce shall implement regulations to enforce this paragraph.
''(c) Eligible Businesses.--For purposes of this section--
''(1) Eligible farming business.--The term 'eligible
farming business' means any farming business (as defined in
section 263A(e)(4)) which is not a passive activity (within the
meaning of section 469(c)) of the taxpayer.
''(2) Commercial fishing.--The term 'commercial fishing'
has the meaning given such term by section (3) of the Magnuson-
Stevens Fishery Conservation and Management Act (16 U.S.C.
1802) but only if such fishing is not a passive activity
(within the meaning of section 469(c)) of the taxpayer.
''(d) FARRM Account.--For purposes of this section--
''(1) In general.--The term 'FARRM Account' means a trust
created or organized in the United States for the exclusive
benefit of the taxpayer, 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 allowed 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 demonstrates to the
satisfaction of the Secretary that the manner in which
such person will administer the trust will be
consistent with the requirements of this section.
''(C) The assets of the trust consist entirely of
cash or of obligations which have adequate 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 Account and shall be subject to tax thereon
in accordance 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 paragraph (2),
there shall be includible in the gross income 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
deposits not distributed within 5 years),
''(ii) subsection (f)(2) (relating to
cessation in eligible farming business), and
''(iii) subparagraph (A) or (B) of
subsection (f)(3) (relating to prohibited
transactions and pledging account as security).
''(2) Exceptions.--Paragraph (1)(A) shall not apply to--
''(A) any distribution to the extent attributable
to income of the Account, and
''(B) the distribution of any contribution paid
during a taxable year to a FARRM Account to the extent
that such contribution exceeds 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.
''(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 taxpayer files such return for such year).
''(B) Nonqualified balance.--For purposes of
subparagraph (A), the term 'nonqualified balance' means
any balance in the Account on the last day of the
taxable year which is attributable to amounts deposited
in such Account before the 4th preceding taxable year.
''(C) Ordering rule.--For purposes of this
paragraph, distributions from a FARRM Account (other
than distributions of current income) shall be treated
as made from deposits in the order in which such
deposits were made, beginning with the earliest
deposits.
''(2) Cessation in eligible business.--At the close of the
first disqualification period after a period for which the
taxpayer was engaged in an eligible farming business or
commercial fishing, there shall be deemed distributed from the
FARRM Account of the taxpayer an amount equal to the balance in
such Account (if any) 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 or commercial fishing.
''(3) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this section:
''(A) Section 220(f)(8) (relating to treatment on
death).
''(B) Section 408(e)(2) (relating to loss of
exemption of account where individual engages in
prohibited transaction).
''(C) Section 408(e)(4) (relating to effect of
pledging account as security).
''(D) Section 408(g) (relating to community
property laws).
''(E) 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 Account on the last day of a taxable year if such payment
is made on account of such taxable year and is made on or
before the due date (without regard to extensions) for filing
the return of tax for such taxable year.
''(5) Individual.--For purposes of this section, the term
'individual' shall not include an estate or trust.
''(6) Deduction not allowed for self-employment tax.--The
deduction allowable by reason of subsection (a) shall not be
taken into account in determining an individual's net earnings
from self-employment (within the meaning of section 1402(a))
for purposes of chapter 2.
''(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 furnished to such persons at
such time and in such manner as may be required by such regulations.''.
(b) Tax on Excess Contributions.--
(1) Subsection (a) of section 4973 of such Code (relating
to tax on excess contributions to certain tax-favored accounts
and annuities) is amended by striking ''or'' at the end of
paragraph (3), by redesignating paragraph (4) as paragraph (5),
and by inserting after paragraph (3) the following:
''(4) a FARRM Account (within the meaning of section
468C(d)), or''.
(2) Section 4973 of such Code is amended by adding at the
end the following:
''(g) Excess Contributions to FARRM Accounts.--For purposes of this
section, in the case of a FARRM Account (within the meaning of section
468C(d)), the term 'excess contributions' means the amount by which the
amount contributed for the taxable year to the Account exceeds the
amount which may be contributed to the Account under section 468C(b)
for such taxable year. For purposes of this subsection, any
contribution 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 ACCOUNTS, ANNUITIES,
ETC.''.

(4) The table of sections for chapter 43 of such Code is
amended by striking the item relating to section 4973 and
inserting the following:

''Sec. 4973. Excess contributions to
certain accounts, annuities,
etc.''.
(c) Tax on Prohibited Transactions.--
(1) Subsection (c) of section 4975 of such Code (relating
to tax on prohibited transactions) is amended by adding at the
end the following:
''(6) Special rule for farrm accounts.--A person for whose
benefit a FARRM Account (within the meaning of section 468C(d))
is established 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 transaction, 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), respectively, and by inserting after
subparagraph (D) the following:
''(E) a FARRM Account described in section
468C(d),''.
(d) Failure To Provide Reports on FARRM Accounts.--Paragraph (2) of
section 6693(a) of such Code (relating to failure to provide reports on
certain tax-favored 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:
''(C) section 468C(g) (relating to FARRM
Accounts),''.
(e) 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:

''Sec. 468C. Farm and Ranch Risk
Management Accounts.''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
A:
Farm and Ranch Risk Management Act - Amends the Internal Revenue Code to allow an individual engaged in an eligible farming or commercial fishing business a deduction for any taxable year of up to 20 percent of taxable income attributable to the eligible farming or commercial fishing business which was paid in cash by the taxpayer to a Farm and Ranch Risk Management Account (FARRM Account).Includes distributions from a FARRM account in the taxpayer's gross income, and subjects to a special ten percent surtax any distributions not made within five years of contribution. Establishes a tax on excess contributions, but exempts the taxpayer from the tax on certain prohibited transactions.