[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 2422 Introduced in Senate (IS)]







106th CONGRESS
  2d Session
                                S. 2422

 To amend the Internal Revenue Code of 1986 to provide tax incentives 
   for farm relief and economic development, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 13, 2000

  Mr. Conrad 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 provide tax incentives 
   for farm relief and economic development, and for other purposes.

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

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Farm Relief and 
Economic Development Act of 2000''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.
Sec. 2. Farm and ranch risk management accounts.
Sec. 3. Lease agreement relating to exclusion of certain farm rental 
                            income from net earnings from self-
                            employment.
Sec. 4. Treatment of Conservation Reserve Program payments as rentals 
                            from real estate.
Sec. 5. Exclusion of gain from sale of certain farmland.
Sec. 6. Exemption of small issue agriculture bonds from State volume 
                            cap.
Sec. 7. Capital gain realized from transfer of farm property in 
                            complete or partial satisfaction of 
                            qualified farm indebtedness excluded from 
                            gross income.
Sec. 8. Exclusion of discharge of qualified farm indebtedness from 
                            gross income increased for certain solvent 
                            farmers.
Sec. 9. Net operating loss of farmers.
Sec. 10. Certain cash rentals of farmland not to cause recapture of 
                            special estate tax valuation.
Sec. 11. Declaratory judgment remedy relating to status and 
                            classification of farmers' cooperatives.
Sec. 12. Income averaging for farmers not to increase alternative 
                            minimum tax liability.

SEC. 2. FARM AND RANCH RISK MANAGEMENT ACCOUNTS.

    (a) In General.--Subpart C of part II of subchapter E of chapter 1 
(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, 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.
    ``(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 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 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.
            ``(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 (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 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.''
    (c) Tax on Prohibited Transactions.--
            (1) Subsection (c) of section 4975 (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) 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) (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 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 December 31, 2000.

SEC. 3. LEASE AGREEMENT RELATING TO EXCLUSION OF CERTAIN FARM RENTAL 
              INCOME FROM NET EARNINGS FROM SELF-EMPLOYMENT.

    (a) Internal Revenue Code.--Section 1402(a)(1)(A) (relating to net 
earnings from self-employment) is amended by striking ``an 
arrangement'' and inserting ``a lease agreement''.
    (b) Social Security Act.--Section 211(a)(1)(A) of the Social 
Security Act is amended by striking ``an arrangement'' and inserting 
``a lease agreement''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 4. TREATMENT OF CONSERVATION RESERVE PROGRAM PAYMENTS AS RENTALS 
              FROM REAL ESTATE.

    (a) In General.--Section 1402(a)(1) of the Internal Revenue Code of 
1986 (defining net earnings from self-employment) is amended by 
inserting ``and including payments under section 1233(2) of the Food 
Security Act of 1985 (16 U.S.C. 3833(2))'' after ``crop shares''.
    (b) Effective Date.--The amendment made by this section shall apply 
to payments made before, on, or after the date of the enactment of this 
Act.

SEC. 5. EXCLUSION OF GAIN FROM SALE OF CERTAIN FARMLAND.

    (a) In General.--Part III of subchapter B of chapter 1 (relating to 
items specifically excluded from gross income) is amended by adding 
after section 121 the following new section:

``SEC. 121A. EXCLUSION OF GAIN FROM SALE OF QUALIFIED FARM PROPERTY.

    ``(a) Exclusion.--In the case of a natural person, gross income 
shall not include gain from the sale or exchange of qualified farm 
property, to the extent such property does not exceed 160 acres.
    ``(b) Limitation on Amount of Exclusion.--
            ``(1) In general.--The amount of gain excluded from gross 
        income under subsection (a) with respect to any taxable year 
        shall not exceed $500,000 ($250,000 in the case of a married 
        individual filing a separate return), reduced by the aggregate 
        amount of gain excluded under subsection (a) for all preceding 
        taxable years.
            ``(2) Special rule for joint returns.--The amount of the 
        exclusion under subsection (a) on a joint return for any 
        taxable year shall be allocated equally between the spouses for 
        purposes of applying the limitation under paragraph (1) for any 
        succeeding taxable year.
    ``(c) Qualified Farm Property.--
            ``(1) Qualified farm property.--For purposes of this 
        section, the term `qualified farm property' means real property 
        located in the United States if--
                    ``(A) during periods aggregating 3 years or more of 
                the 5-year period ending on the date of the sale or 
                exchange of such real property--
                            ``(i) such real property was used as a farm 
                        for farming purposes by the taxpayer or a 
                        member of the family of the taxpayer, and
                            ``(ii) there was material participation by 
                        the taxpayer (or such a member) in the 
                        operation of the farm, and
                    ``(B) such real property is located contiguous to 
                the principal residence of the taxpayer which is sold 
                or exchanged in the same taxable year as such real 
                property.
            ``(2) Definitions.--For purposes of this subsection, the 
        terms `member of the family', `farm', and `farming purposes' 
        have the respective meanings given such terms by paragraphs 
        (2), (4), and (5) of section 2032A(e).
            ``(3) Special rules.--For purposes of this section, rules 
        similar to the rules of paragraphs (4) and (5) of section 
        2032A(b) and paragraphs (3) and (6) of section 2032A(e) shall 
        apply.
    ``(d) Other Rules.--For purposes of this section, rules similar to 
the rules of subsection (e) and subsection (f) of section 121 shall 
apply.''
    (b) Conforming Amendment.--The table of sections for part III of 
subchapter B of chapter 1 is amended by adding after the item relating 
to section 121 the following new item:

``Sec. 121A. Exclusion of gain from sale of qualified farm property.''
    (c) Effective Date.--The amendment made by this section shall apply 
to any sale or exchange after December 31, 2000, in taxable years 
ending after such date.

SEC. 6. EXEMPTION OF SMALL ISSUE AGRICULTURE BONDS FROM STATE VOLUME 
              CAP.

    (a) In General.--Section 146(g) (relating to exception for certain 
bonds) is amended by striking ``and'' at the end of paragraph (3), by 
striking the period at the end of paragraph (4) and inserting ``, 
and'', and by inserting after paragraph (4) the following:
            ``(5) any small issue bond described in section 
        144(a)(12)(B)(ii).''
    (b) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 2000.

SEC. 7. CAPITAL GAIN REALIZED FROM TRANSFER OF FARM PROPERTY IN 
              COMPLETE OR PARTIAL SATISFACTION OF QUALIFIED FARM 
              INDEBTEDNESS EXCLUDED FROM GROSS INCOME.

    (a) In General.--Part III of subchapter B of chapter 1 (relating to 
items specifically excluded from gross income) is amended by 
redesignating section 139 as section 140 and by inserting after section 
138 the following new section:

``SEC. 139. CAPITAL GAIN REALIZED FROM TRANSFER OF FARM PROPERTY IN 
              COMPLETE OR PARTIAL SATISFACTION OF QUALIFIED FARM 
              INDEBTEDNESS.

    ``(a) In General.--Gross income of any taxpayer described in 
subsection (d) does not include so much of the gain from the transfer 
of farm property in complete or partial satisfaction of qualified farm 
indebtedness as does not exceed $300,000.
    ``(b) Prior Gains and Discharges of Indebtedness Taken Into 
Account.--
            ``(1) In general.--If for any prior year--
                    ``(A) gain from the transfer of farm property in 
                complete or partial satisfaction of qualified farm 
                indebtedness, or
                    ``(B) a discharge of such indebtedness,
        is excluded from the taxpayer's gross income under subsection 
        (a) of this section or section 108(g), respectively, subsection 
        (a) of this section shall be applied for the taxable year with 
        respect to such gain by reducing the dollar amount contained in 
        such subsection by the such excluded prior year gains and 
        discharges.
            ``(2) Current year coordination with section 108.--
        Subsection (a) of this section shall be applied for the taxable 
        year with respect to any gain by reducing the dollar amount 
        contained in such subsection (after any reduction under 
        paragraph (1)) by any amount excluded from gross income under 
        section 108 for such year.
    ``(c) Reduction of Tax Attributes.--
            ``(1) In general.--The amount excluded from gross income 
        under subsection (a) shall be applied to reduce the tax 
        attributes described under section 108(b)(2).
            ``(2) Coordination with section 108.--For purposes of this 
        subsection, the amount of tax attributes shall be determined 
        after any reduction under section 108(b) by reason of amounts 
        excluded from gross income under section 108(a)(1).
    ``(d) Taxpayer Described in This Subsection.--
            ``(1) In general.--A taxpayer is described in this 
        subsection if--
                    ``(A) more than 50 percent of the gross receipts of 
                the taxpayer for 6 of the 10 taxable years preceding 
                such taxable year are attributable to--
                            ``(i) the trade or business of farming 
                        (within the meaning of section 2032A(e)(5)), or
                            ``(ii) the sale or lease of assets used in 
                        such trade or business, or
                            ``(iii) both, and
                    ``(B) equity in all property held by the taxpayer 
                after such transfer is less than the greater of --
                            ``(i) $25,000, or
                            ``(ii) 150 percent of the excess (if any) 
                        of--
                                    ``(I) the tax imposed by this 
                                chapter determined as if this section 
                                and section 108 did not apply to the 
                                transfer, over
                                    ``(II) the tax imposed by this 
                                chapter determined with regard to this 
                                section and section 108 (if 
                                applicable).
            ``(2) Modified adjusted gross income.--For purposes of this 
        subsection, the term `modified adjusted gross income' means 
        adjusted gross income--
                    ``(A) determined with regard to this section and 
                section 108, and
                    ``(B) increased by the amount of interest received 
                or accrued by the taxpayer during the taxable year 
                which is exempt from tax.
            ``(3) Equity.--For purposes of this subsection, the term 
        `equity' means, with respect to all property held by the 
        taxpayer, an amount equal to--
                    ``(A) the fair market value of such property, minus
                    ``(B) any indebtedness relating to such property.
    ``(e) Farm Property.--For purposes of this section, the term `farm 
property' means real and personal property used by the taxpayer in the 
trade or business of farming (within the meaning of section 
2032A(e)(5)).
    ``(f) Qualified Farm Indebtedness.--For purposes of this section, 
indebtedness of a taxpayer shall be treated as qualified farm 
indebtedness if such indebtedness was incurred directly in connection 
with the operation by the taxpayer of the trade or business of farming 
(within the meaning of section 2032A(e)(5)) and when such taxpayer 
materially participated in such trade or business (within the meaning 
of section 2032A(e)(6)).
    ``(g) Application With Recapture Provisions.--In the case of any 
gain from the transfer of farm property in complete or partial 
satisfaction of qualified farm indebtedness which is treated as 
ordinary income under section 1245, 1250, 1252, or 1255, subsection (a) 
shall be applied for the taxable year by first reducing the dollar 
amount contained in such subsection by such gain.''
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 is amended by striking out the item relating 
to section 139 and inserting in lieu thereof the following new items:

``Sec. 139. Capital gain realized from transfer of farm property in 
                            complete or partial satisfaction of 
                            qualified farm indebtedness.
``Sec. 140. Cross references to other Acts.''
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers occurring after December 31, 2000, in taxable years 
ending after such date.

SEC. 8. EXCLUSION OF DISCHARGE OF QUALIFIED FARM INDEBTEDNESS FROM 
              GROSS INCOME INCREASED FOR CERTAIN SOLVENT FARMERS.

    (a) In General.--Section 108(g) (relating to special rules for 
discharge of qualified farm indebtedness) is amended by adding at the 
end thereof the following new paragraph:
            ``(4) Special limitations for certain farmers.--
                    ``(A) In general.--With respect to a taxpayer who 
                is described in subparagraph (C) of this paragraph and 
                who elects the application of this paragraph--
                            ``(i) the amount excluded under 
                        subparagraph (C) of subsection (a)(1) shall not 
                        exceed $300,000, and
                            ``(ii) paragraph (2) of this subsection 
                        shall be applied by amending such paragraph to 
                        read as follows: `For purposes of this section, 
                        indebtedness of a taxpayer shall be treated as 
                        qualified farm indebtedness if such 
                        indebtedness was incurred directly in 
                        connection with the operation by the taxpayer 
                        of the trade or business of farming and when 
                        such taxpayer materially participated in such 
                        trade or business (within the meaning of 
                        section 2032A(e)(6)).'
                    ``(B) Prior discharges of indebtedness and gains 
                taken into account.--If for any prior year--
                            ``(i) a discharge of qualified farm 
                        indebtedness, or
                            ``(ii) gain from the transfer of farm 
                        property in complete or partial satisfaction of 
                        such indebtedness,
                is excluded from the taxpayer's gross income under this 
                subsection or section 139, respectively, subparagraph 
                (A) shall be applied for the taxable year with respect 
                to such discharge by reducing the dollar amount 
                contained in such subparagraph by the such excluded 
                prior year discharges and gains.
                    ``(C) Taxpayer described in this subparagraph.--A 
                taxpayer is described in this subparagraph if--
                            ``(i) more than 50 percent of the gross 
                        receipts of the taxpayer for 6 of the 10 
                        taxable years preceding such taxable year are 
                        attributable to--
                                    ``(I) the trade or business of 
                                farming (within the meaning of section 
                                2032A(e)(5)), or
                                    ``(II) the sale or lease of assets 
                                used in such trade or business, or
                                    ``(III) both,
                            ``(ii) the indebtedness of the taxpayer 
                        both before and after such discharge is equal 
                        to 70 percent or more of the fair market value 
                        in all property held by such taxpayer, and
                            ``(iii) equity in all property held by the 
                        taxpayer after such discharge is less than the 
                        greater of--
                                    ``(I) $25,000, or
                                    ``(II) 150 percent of the excess 
                                (if any) of the tax imposed by this 
                                chapter determined as if this section 
                                and section 139 did not apply to the 
                                transfer, over the tax imposed by this 
                                chapter determined with regard to this 
                                section and section 139 (if 
                                applicable).
                    ``(D) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Farm property.--The term `farm 
                        property' means real and personal property used 
                        by the taxpayer in the trade or business of 
                        farming (within the meaning of section 
                        2032A(e)(5)).
                            ``(ii) Modified adjusted gross income.--The 
                        term `modified adjusted gross income' means 
                        adjusted gross income--
                                    ``(I) determined with regard to 
                                this section and section 139, and
                                    ``(II) increased by the amount of 
                                interest received or accrued by the 
                                taxpayer during the taxable year which 
                                is exempt from tax.
                            ``(iii) Equity.--The term `equity' means, 
                        with respect to any property, an amount equal 
                        to--
                                    ``(I) the fair market value of such 
                                property, minus
                                    ``(II) any indebtedness relating to 
                                such property.''
    (b) Conforming Amendment.--Subparagraph (A) of section 108(g)(3) is 
amended by striking out ``The amount'' and inserting in lieu thereof 
``Except as provided in paragraph (4), the amount''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any sale or exchange occurring after December 31, 2000, in 
taxable years ending after such date.

SEC. 9. NET OPERATING LOSS OF FARMERS.

    (a) Increase in Carryback Years.--Paragraph (1) of section 172(b) 
(relating to net operating loss carrybacks and carryforwards) is 
amended by adding at the end the following new subparagraph:
                    ``(H) Farming losses.--Subparagraph (A) shall be 
                applied--
                            ``(i) in the matter preceding clause (i), 
                        by substituting `any taxable year beginning 
                        with the 3rd taxable year after the taxable 
                        year of such loss' for `any taxable year', and
                            ``(ii) in clause (i), by substituting `10 
                        years' for `2 years',
                with respect to the portion of the net operating loss 
                of an eligible taxpayer (as defined in subsection (i)) 
                for any taxable year beginning after December 31, 1997, 
                and ending before January 1, 2001, which is a farming 
                loss (as so defined) with respect to the taxpayer.''
    (b) Definitions and Rules Relating to Farming Losses.--Section 172 
is amended by redesignating subsection (j) as subsection (k) and 
inserting after subsection (i) the following new subsection:
    ``(j) Definitions and Rules Relating to Farming Losses.--For 
purposes of this section--
            ``(1) Farming loss.--
                    ``(A) In general.--The term `farming loss' means 
                the lesser of--
                            ``(i) the net operating loss of the 
                        taxpayer for the taxable year, or
                            ``(ii) the net operating loss of the 
                        taxpayer for the taxable year determined by 
                        only taking into account items of income and 
                        deduction attributable to 1 or more qualified 
                        farming business of the taxpayer.
                    ``(B) Dollar limitation.--
                            ``(i) In general.--The farming loss of 
                        taxpayer for any taxable year shall not exceed 
                        $200,000.
                            ``(ii) Aggregation rules.--
                                    ``(I) In general.--All persons 
                                treated as 1 employer under subsections 
                                (a) or (b) of section 52 shall be 
                                treated as 1 person.
                                    ``(II) Pass-thru entity.--In the 
                                case of a partnership, trust, or other 
                                pass-thru entity, the limitation shall 
                                be applied at both the entity and the 
                                owner level.
                                    ``(III) Owner.--The limitation 
                                shall be reduced by the amount of 
                                farming loss determined for a 
                                corporation for which the taxpayer is a 
                                50 percent owner in the taxable year of 
                                the corporation ending in the taxable 
                                year of the taxpayer owner.
            ``(2) Eligible taxpayer.--
                    ``(A) In general.--The term `eligible taxpayer' 
                means a taxpayer which derives more than 50 percent of 
                its gross income for the 3-year period beginning 2 
                years prior to the current taxable year from qualified 
                farming businesses.
                    ``(B) Qualified farming business.--The term 
                `qualified farming business' means a trade or business 
                of farming (within the meaning of section 2032A)--
                            ``(i) with respect to which--
                                    ``(I) the taxpayer or a member of 
                                the family of the taxpayer materially 
                                participates (within the meaning of 
                                section 2032A(e)(6)), or
                                    ``(II) in the case of a taxpayer 
                                other than an individual, a 20 percent 
                                owner of the taxpayer or a member of 
                                the owner's family materially 
                                participates (as so defined), and
                            ``(ii) which does not receive in excess of 
                        $7,000,000 for sales in a taxable year.
                For purposes of clause (i)(II), owners which are 
                members of a single family shall be treated as a single 
                owner.
            ``(3) Owner.--
                    ``(A) 20 percent owner.--The term `20 percent 
                owner' means any person who would be described in 
                section 416(i)(1)(B)(i) if `20 percent' were 
                substituted for `5 percent' each place it appears in 
                such section.
                    ``(B) 50 percent owner.--The term `50 percent 
                owner' means any person who would be described in 
                section 416(i)(1)(B)(i) if `50 percent' were 
                substituted for `5 percent' each place it appears in 
                such section.
            ``(4) Coordination with subsection (b)(2).--For purposes of 
        applying subsection (b)(2), a farming loss for any taxable year 
        shall be treated as a separate net operating loss for such 
        taxable year to be taken into account for the remaining portion 
        of the net operating loss for such taxable year.
            ``(5) Election.--Any taxpayer entitled to a 10-year 
        carryback under subsection (b)(1)(G) from any loss year may 
        elect to have the carryback period with respect to such loss 
        year, and any portion of the farming loss for such year, 
        determined without regard to subsection (b)(1)(G). Such 
        election shall be made in such manner as may be prescribed by 
        the Secretary and shall be made by the due date (including 
        extensions of time) for filing the taxpayer's return for the 
        taxable year of the net operating loss. Such election, once 
        made for any taxable year, shall be irrevocable for the taxable 
        year.''

SEC. 10. CERTAIN CASH RENTALS OF FARMLAND NOT TO CAUSE RECAPTURE OF 
              SPECIAL ESTATE TAX VALUATION.

    (a) In General.--Subparagraph (E) of section 2032A(c)(7) (relating 
to special rules) is amended to read as follows:
                    ``(E) Certain cash rental not to cause recapture.--
                For purposes of this subsection, a qualified heir shall 
                not be treated as failing to use property in a 
                qualified use solely because such heir rents such 
                property on a net cash basis to a member of the 
                decedent's family, but only if, during the period of 
                the lease, such member of the decedent's family uses 
                such property in a qualified use.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply with respect to rentals occurring after December 31, 1976.

SEC. 11. DECLARATORY JUDGMENT REMEDY RELATING TO STATUS AND 
              CLASSIFICATION OF FARMERS' COOPERATIVES.

    (a) In General.--Paragraph (1) of section 7428(a) (relating to 
creation of remedy) is amended by striking ``or'' at the end of 
subparagraph (B), and by inserting after subparagraph (C) the following 
new subparagraph:
                    ``(D) with respect to the initial qualification or 
                continuing qualification of an organization as a 
                cooperative described in section 521(b) which is exempt 
                from tax under section 521(a), or''.
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to pleadings filed with the United States Tax Court, the 
district court of the United States for the District of Columbia, or 
the United States Court of Federal Claims after the date of enactment 
of this Act but only with respect to determinations (or requests for 
determinations) made after January 1, 1998.

SEC. 12. INCOME AVERAGING FOR FARMERS NOT TO INCREASE ALTERNATIVE 
              MINIMUM TAX LIABILITY.

    (a) In General.--Section 55(c) (defining regular tax) is amended by 
redesignating paragraph (2) as paragraph (3) and by inserting after 
paragraph (1) the following:
            ``(2) Coordination with income averaging for farmers.--
        Solely for purposes of this section, section 1301 (relating to 
        averaging of farm income) shall not apply in computing the 
        regular tax.''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1997.
                                 <all>