[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 2371 Introduced in Senate (IS)]







105th CONGRESS
  2d Session
                                S. 2371

To amend the Internal Revenue Code of 1986 to reduce individual capital 
       gains tax rates and to provide tax incentives for farmers.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 30, 1998

Mr. Grassley (for Mr. Lott) (for himself, Mr. Grassley, Mr. Hagel, Mr. 
 Roberts, Mr. Burns, Mr. Craig, Mr. Shelby, Mr. Sessions, Mr. Thomas, 
 Mr. Coverdell, and Mr. Cochran) introduced the following bill; which 
        was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to reduce individual capital 
       gains tax rates and to provide tax incentives for farmers.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Family Investment 
and Rural Savings Tax Act''.
    (b) Table of Contents.--

Sec. 1. Short title; table of contents.
        TITLE I--REDUCTION IN INDIVIDUAL CAPITAL GAINS TAX RATES

Sec. 101. Reduction in individual capital gains tax rates.
                  TITLE II--TAX INCENTIVES FOR FARMERS

Sec. 201. Farm and ranch risk management accounts.
Sec. 202. Permanent extension of income averaging for farmers.

        TITLE I--REDUCTION IN INDIVIDUAL CAPITAL GAINS TAX RATES

SEC. 101. REDUCTION IN INDIVIDUAL CAPITAL GAINS TAX RATES.

    (a) In General.--Subsection (h) of section 1 of the Internal 
Revenue Code of 1986 is amended to read as follows:
    ``(h) Maximum Capital Gains Rate.--
            ``(1) In general.--If a taxpayer has a net capital gain for 
        any taxable year, the tax imposed by this section for such 
        taxable year shall not exceed the sum of--
                    ``(A) a tax computed at the rates and in the same 
                manner as if this subsection had not been enacted on 
                taxable income reduced by the net capital gain,
                    ``(B) 7.5 percent of so much of the net capital 
                gain (or, if less, taxable income) as does not exceed 
                the excess (if any) of--
                            ``(i) the amount of taxable income which 
                        would (without regard to this paragraph) be 
                        taxed at a rate below 28 percent, over
                            ``(ii) the taxable income reduced by the 
                        net capital gain, and
                    ``(C) 15 percent of the amount of taxable income in 
                excess of the sum of the amounts on which tax is 
                determined under subparagraphs (A) and (B).
            ``(2) Net capital gain taken into account as investment 
        income.--For purposes of this subsection, the net capital gain 
        for any taxable year shall be reduced (but not below zero) by 
        the amount which the taxpayer takes into account as investment 
        income under section 163(d)(4)(B)(iii).''
    (b) Alternative Minimum Tax.--Paragraph (3) of section 55(b) of 
such Code is amended to read as follows:
            ``(3) Maximum rate of tax on net capital gain of 
        noncorporate taxpayers.--The amount determined under the first 
        sentence of paragraph (1)(A)(i) shall not exceed the sum of--
                    ``(A) the amount determined under such first 
                sentence computed at the rates and in the same manner 
                as if this paragraph had not been enacted on the 
                taxable excess reduced by the net capital gain,
                    ``(B) 7.5 percent of so much of the net capital 
                gain (or, if less, taxable excess) as does not exceed 
                the amount on which a tax is determined under section 
                1(h)(1)(B), and
                    ``(C) 15 percent of the amount of taxable excess in 
                excess of the sum of the amounts on which tax is 
                determined under subparagraphs (A) and (B).''
    (c) Conforming Amendments.--
            (1) Paragraph (1) of section 1445(e) of such Code is 
        amended by striking ``20 percent'' and inserting ``15 
        percent''.
            (2) The second sentence of section 7518(g)(6)(A) of such 
        Code, and the second sentence of section 607(h)(6)(A) of the 
        Merchant Marine Act, 1936, are each amended by striking ``20 
        percent'' and inserting ``15 percent''.
            (3) Section 311 of the Taxpayer Relief Act of 1997 is 
        amended by striking subsection (e).
            (4) Paragraph (7) of section 57(a) of such Code (as amended 
        by the Internal Revenue Service Restructuring and Reform Act of 
        1998) is amended by striking the last sentence.
            (5) Paragraphs (11) and (12) of section 1223, and section 
        1235(a), of such Code (as amended by the Internal Revenue 
        Service Restructuring and Reform Act of 1998) are each amended 
        by striking ``18 months'' each place it appears and inserting 
``1 year''.
    (d) Transitional Rules for Taxable Years Which Include June 24, 
1998.--
            (1) In general.--Subsection (h) of section 1 of such Code 
        (as amended by the Internal Revenue Service Restructuring and 
        Reform Act of 1998) is amended by adding at the end the 
        following new paragraph:
            ``(14) Special rules for taxable years which include june 
        24, 1998.--For purposes of applying this subsection in the case 
        of a taxable year which includes June 24, 1998--
                    ``(A) Gains or losses properly taken into account 
                for the period on or after such date shall be 
                disregarded in applying paragraph (5)(A)(i), subclauses 
                (I) and (II) of paragraph (5)(A)(ii), paragraph (5)(B), 
                paragraph (6), and paragraph (7)(A).
                    ``(B) The amount determined under subparagraph (B) 
                of paragraph (1) shall be the sum of--
                            ``(i) 7.5 percent of the amount which would 
                        be determined under such subparagraph if the 
                        amount of gain taken into account under such 
                        subparagraph did not exceed the net capital 
                        gain taking into account only gain or loss 
                        properly taken into account for the portion of 
                        the taxable year on or after such date, plus
                            ``(ii) 10 percent of the excess of the 
                        amount determined under such subparagraph 
                        (determined without regard to this paragraph) 
                        over the amount determined under clause (i).
                    ``(C) The amount determined under subparagraph (C) 
                of paragraph (1) shall be the sum of--
                            ``(i) 15 percent of the amount which would 
                        be determined under such subparagraph if the 
                        adjusted net capital gain did not exceed the 
                        net capital gain taking into account only gain 
                        or loss properly taken into account for the 
                        portion of the taxable year on or after such 
                        date, plus
                            ``(ii) 20 percent of the excess of the 
                        amount determined under such subparagraph 
                        (determined without regard to this paragraph) 
                        over the amount determined under clause (i).
                    ``(D) Rules similar to the rules of paragraph 
                (13)(C) shall apply.''
            (2) Alternative minimum tax.--Paragraph (3) of section 
        55(b) of such Code (as amended by the Internal Revenue Service 
        Restructuring and Reform Act of 1998) is amended by adding at 
        the end the following new sentence: ``For purposes of applying 
        this paragraph for a taxable year which includes June 24, 1998, 
        rules similar to the rules of section 1(h)(14) shall apply.''
    (e) Effective Dates.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years beginning on or after June 24, 1998.
            (2) Transitional rules for taxable years which include june 
        24, 1998.--The amendments made by subsection (d) shall apply to 
        taxable years beginning before such date and ending on or after 
        June 24, 1998.
            (3) Withholding.--The amendment made by subsection (c)(1) 
        shall apply only to amounts paid after the date of the 
        enactment of this Act.
            (4) Certain conforming amendments.--The amendments made by 
        subsection (c)(5) shall take effect on June 24, 1998.

                  TITLE II--TAX INCENTIVES FOR FARMERS

SEC. 201. 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 new section:

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

    ``(a) Deduction Allowed.--In the case of an individual engaged in 
an eligible farming business, 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.--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.
    ``(c) Eligible Farming Business.--For purposes of this section, 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.
    ``(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.
            ``(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 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 shall be 
                treated as made from deposits in the order in which 
                such deposits were made, beginning with the earliest 
                deposits. For purposes 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 
                Account.
            ``(2) Cessation in eligible farming business.--At the close 
        of the first disqualification period after a period for which 
        the taxpayer was engaged 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 community 
                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 Account on the last day of a taxable year if such payment 
        is made on account of such taxable year and is made within 3\1/
        2\ months after the close of such taxable year.
            ``(5) Individual.--For purposes of this section, 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 furnished to such persons at 
such time and in such manner as may be required by those regulations.''
    (b) Deduction Allowed in Computing Adjusted Gross Income.--
Subsection (a) of section 62 of such Code (defining adjusted gross 
income) is amended by inserting after paragraph (17) the following new 
paragraph:
            ``(18) Contributions to farm and ranch risk management 
        accounts.--The deduction allowed by section 468C(a).''
    (c) Tax on Excess Contributions.--
            (1) Subsection (a) of section 4973 of such Code (relating 
        to tax on certain excess contributions) 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 new paragraph:
            ``(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 new subsection:
    ``(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 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 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 new subparagraph:
                    ``(E) a FARRM Account described in section 
                468C(d),''.
    (e) 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 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.

SEC. 202. PERMANENT EXTENSION OF INCOME AVERAGING FOR FARMERS.

    Section 933(c) of the Taxpayer Relief Act of 1997 is amended by 
striking ``, and before January 1, 2001''.
                                 <all>