[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 907 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                 S. 907

  To amend the Internal Revenue Code of 1986 to encourage the use of 
ethanol and the adoption of other forms of value-added agriculture, and 
                          for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 17, 2001

 Mrs. Carnahan 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 encourage the use of 
ethanol and the adoption of other forms of value-added agriculture, 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.

    This Act may be cited as the ``Investment in Value-Added 
Agriculture Act''.

SEC. 2. EXTENSION OF ETHANOL MOTOR FUEL EXCISE TAX EXEMPTION.

    (a) In General.--Section 40(e)(1) of the Internal Revenue Code of 
1986 (relating to termination) is amended--
            (1) in subparagraph (A) by striking ``2007'' and inserting 
        ``2015'', and
            (2) in subparagraph (B) by striking ``2008'' and inserting 
        ``2016''.

SEC. 3. SMALL ETHANOL PRODUCER CREDIT.

    (a) Allocation of Alcohol Fuels Credit to Patrons of a 
Cooperative.--Section 40(g) of the Internal Revenue Code of 1986 
(relating to alcohol used as fuel) is amended by adding at the end the 
following new paragraph:
            ``(6) Allocation of small ethanol producer credit to 
        patrons of cooperative.--
                    ``(A) Election to allocate.--
                            ``(i) In general.--In the case of a 
                        cooperative organization described in section 
                        1381(a), any portion of the credit determined 
                        under subsection (a)(3) for the taxable year 
                        may, at the election of the organization, be 
                        apportioned pro rata among patrons of the 
                        organization on the basis of the quantity or 
                        value of business done with or for such patrons 
                        for the taxable year.
                            ``(ii) Form and effect of election.--An 
                        election under clause (i) for any taxable year 
                        shall be made on a timely filed return for such 
                        year. Such election, once made, shall be 
                        irrevocable for such taxable year.
                    ``(B) Treatment of organizations and patrons.--The 
                amount of the credit apportioned to patrons under 
                subparagraph (A)--
                            ``(i) shall not be included in the amount 
                        determined under subsection (a) with respect to 
                        the organization for the taxable year,
                            ``(ii) shall be included in the amount 
                        determined under subsection (a) for the taxable 
                        year of each patron for which the patronage 
                        dividends for the taxable year described in 
                        subparagraph (A) are included in gross income, 
                        and
                            ``(iii) shall be included in gross income 
                        of such patrons for the taxable year in the 
                        manner and to the extent provided in section 
                        87.
                    ``(C) Special rules for decrease in credits for 
                taxable year.--If the amount of the credit of a 
                cooperative organization determined under subsection 
                (a)(3) for a taxable year is less than the amount of 
                such credit shown on the return of the cooperative 
                organization for such year, an amount equal to the 
                excess of--
                            ``(i) such reduction, over
                            ``(ii) the amount not apportioned to such 
                        patrons under subparagraph (A) for the taxable 
                        year,
                shall be treated as an increase in tax imposed by this 
                chapter on the organization. Such increase shall not be 
                treated as tax imposed by this chapter for purposes of 
                determining the amount of any credit under this subpart 
                or subpart A, B, E, or G.''.
    (b) Improvements to Small Ethanol Producer Credit.--
            (1) Definition of small ethanol producer.--Section 40(g) of 
        the Internal Revenue Code of 1986 (relating to definitions and 
        special rules for eligible small ethanol producer credit) is 
        amended by striking ``30,000,000'' each place it appears and 
        inserting ``60,000,000''.
            (2) Small ethanol producer credit not a passive activity 
        credit.--Clause (i) of section 469(d)(2)(A) of such Code is 
        amended by striking ``subpart D'' and inserting ``subpart D, 
        other than section 40(a)(3),''.
            (3) Allowing credit against minimum tax.--
                    (A) In general.--Subsection (c) of section 38 of 
                such Code (relating to limitation based on amount of 
                tax) is amended by redesignating paragraph (3) as 
                paragraph (4) and by inserting after paragraph (2) the 
                following new paragraph:
            ``(3) Special rules for small ethanol producer credit.--
                    ``(A) In general.--In the case of the small ethanol 
                producer credit--
                            ``(i) this section and section 39 shall be 
                        applied separately with respect to the credit, 
                        and
                            ``(ii) in applying paragraph (1) to the 
                        credit--
                                    ``(I) subparagraphs (A) and (B) 
                                thereof shall not apply, and
                                    ``(II) the limitation under 
                                paragraph (1) (as modified by subclause 
                                (I)) shall be reduced by the credit 
                                allowed under subsection (a) for the 
                                taxable year (other than the small 
                                ethanol producer credit).
                    ``(B) Small ethanol producer credit.--For purposes 
                of this subsection, the term `small ethanol producer 
                credit' means the credit allowable under subsection (a) 
                by reason of section 40(a)(3).''.
                    (B) Conforming amendment.--Subclause (II) of 
                section 38(c)(2)(A)(ii) of such Code is amended by 
                striking ``(other'' and all that follows through 
                ``credit)'' and inserting ``(other than the empowerment 
                zone employment credit or the small ethanol producer 
                credit)''.
            (4) Small ethanol producer credit not added back to income 
        under section 87.--Section 87 of such Code (relating to income 
        inclusion of alcohol fuel credit) is amended to read as 
        follows:

``SEC. 87. ALCOHOL FUEL CREDIT.

    ``Gross income includes an amount equal to the sum of--
            ``(1) the amount of the alcohol mixture credit determined 
        with respect to the taxpayer for the taxable year under section 
        40(a)(1), and
            ``(2) the alcohol credit determined with respect to the 
        taxpayer for the taxable year under section 40(a)(2).''.
    (c) Conforming Amendment.--Section 1388 of the Internal Revenue 
Code of 1986 (relating to definitions and special rules for cooperative 
organizations) is amended by adding at the end the following new 
subsection:
    ``(k) Cross Reference.--For provisions relating to the 
apportionment of the alcohol fuels credit between cooperative 
organizations and their patrons, see section 40(g)(6).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 4. CREDIT FOR FARMER INVESTMENT IN VALUE-ADDED AGRICULTURAL 
              PROPERTY.

    (a) In General.--Subpart D of part IV of subchapter 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 INVESTMENT 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 agricultural 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 
holding 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 eligible 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 farmer-owned entity.--
                    ``(A) In general.--In the case of property placed 
                in service by a farmer-owned entity, the credit 
                determined under this section shall not exceed the sum 
                of the eligible person's creditable investments in such 
                entity as of the date such property is placed in 
                service.
                    ``(B) Creditable investments.--For purposes of 
                subparagraph (A), the term `creditable 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, 
                reduced (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 account 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 exceed $30,000.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualified value-added agricultural property.--The 
        term `qualified value-added agricultural property' means 
        property--
                    ``(A) which is used to add value to a good or 
                product, suitable for food or nonfood use, derived in 
                whole or in part from organic matter which is available 
                on a renewable basis, including agricultural crops and 
                agricultural wastes and residues, wood wastes and 
                residues, and domesticated animal wastes,
                    ``(B)(i) to which section 168 applies without 
                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 person' means 
                a person who materially participates during the taxable 
                year in an eligible farming business.
                    ``(B) Material participation.--For purposes of 
                subparagraph (A), the determination 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 
                        corporation) 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 patronage 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 
                applying such rules, the members of an individual'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 grandchildren (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 
                businesses (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 corporation 
                        if such stock is acquired by the taxpayer after 
                        December 31, 2001, and before January 1, 2008, 
                        at its original issue (directly 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, 
                        2001, and before January 1, 2008, and
                            ``(iii) any patronage interest in a 
                        cooperative if such interest is acquired by the 
                        taxpayer after December 31, 2001, and before 
                        January 1, 2008.
                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 individual (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 eligible.--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 property 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 Dispositions.--
            ``(1) In general.--Under regulations prescribed by the 
        Secretary, rules similar to the rules of section 50(a) shall 
        apply with respect to an eligible 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 paragraph (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 persons.--In the case 
                that an heir of an eligible person is also an eligible 
                person, neither paragraph (1) nor subparagraph (A) of 
                this paragraph (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 purposes of this section.
    ``(g) Termination.--This section shall not apply to property placed 
in service after December 31, 2007.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) of the Internal Revenue Code of 1986 (defining current 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 defined in 
        section 45E(c)), the value-added agricultural property 
        investment credit determined under section 45E(a).''.
    (c) Credit Allowable Against Minimum Tax.--
            (1) In general.--Subsection (c) of section 38 of the 
        Internal Revenue Code of 1986 is amended by redesignating 
        paragraph (3) as paragraph (4) and by inserting after paragraph 
        (2) the following new paragraph:
            ``(3) Value-added agricultural property investment credit 
        allowed against minimum tax.--
                    ``(A) In general.--The amount determined 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 agricultural property 
                investment credit not used against normal limitation.--
                For purposes 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 
                        investment credit, over
                            ``(ii) the limitation of paragraph (1) 
                        (determined without regard to this paragraph) 
                        reduced by the portion of the credit under 
                        subsection (a) which is not so attributable.''.
            (2) Conforming amendment.--Subclause (II) of section 
        38(c)(2)(A)(ii) of such Code is amended by inserting ``or the 
        value-added agricultural property investment credit'' after 
        ``employment credit''.
    (d) Limitation on Carryback.--Subsection (d) of section 39 of the 
Internal Revenue Code of 1986 is amended by adding at the end thereof 
the following new paragraph:
            ``(10) No carryback of value-added agricultural property 
        investment credit before effective date.--No portion of the 
        unused business 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 the Internal Revenue Code of 1986 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 investment 
        credit determined under section 45E.''.
    (f) Basis Adjustment.--Subsection (a) of section 1016 of the 
Internal Revenue Code of 1986 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 the Internal Revenue Code of 
1986 is amended by adding at the end thereof the following new section:

                              ``Sec. 45E. Value-added agricultural 
                                        property investment credit.''.
    (h) Effective Date.--The amendments made by this section shall 
apply to qualified investments (as defined in section 45E(c)(5) of the 
Internal Revenue Code of 1986 (as added by this section) made, and 
property placed in service, after December 31, 2001.
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