[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 1464 Introduced in Senate (IS)]






108th CONGRESS
  1st Session
                                S. 1464

To amend the Internal Revenue Code of 1986 to provide an exclusion for 
 gain from the sale of farmland to encourage the continued use of the 
             property for farming, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                July 25 (legislative day, July 21), 2003

 Mr. Hagel (for himself and Mr. Dorgan) 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 an exclusion for 
 gain from the sale of farmland to encourage the continued use of the 
             property for farming, 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 ``Beginning Farmers and Ranchers Tax 
Incentive Act of 2003''.

SEC. 2. EXCLUSION OF GAIN FROM SALE OF CERTAIN FARMLAND.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (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--
            ``(1) 100 percent of the gain from the sale or exchange of 
        qualified farm property to a first-time farmer (as defined in 
        section 147(c)(2)(C) (determined without regard to clause 
        (i)(II) thereof)) who certifies that the use of such property 
        shall be as a farm for farming purposes for not less than 10 
        years after such sale or exchange,
            ``(2) 50 percent of the gain from the sale or exchange of 
        qualified farm property to any other person who certifies that 
        the use of such property shall be as a farm for farming 
        purposes for not less than 10 years after such sale or 
        exchange, and
            ``(3) 25 percent of the gain from the sale or exchange of 
        qualified farm property to any other person for any other use.
    ``(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, 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--
                    ``(A) such real property was used as a farm for 
                farming purposes by the taxpayer or a member of the 
                family of the taxpayer, and
                    ``(B) there was material participation by the 
                taxpayer (or such a member) in the operation of the 
                farm.
            ``(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.
    ``(e) Treatment of Disposition or Change in Use of Property.--
            ``(1) In general.--If, as of the close of any taxable year, 
        there is a recapture event with respect to any qualified farm 
        property transferred to the taxpayer in a sale or exchange 
        described in paragraph (1) or (2) of subsection (a), then the 
        tax of the taxpayer under this chapter for such taxable year 
        shall be increased by an amount equal to the product of--
                    ``(A) the applicable recapture percentage, and
                    ``(B) 10 percent of the taxpayer's adjusted basis 
                in the property on the date such property was 
                transferred to the taxpayer.
            ``(2) Applicable recapture percentage.--
                    ``(A) In general.--For purposes of this subsection, 
                the applicable recapture percentage shall be determined 
                from the following table:

``If the recapture event occurs in: The applicable recapture percentage 
                                            is:
                Years 1 through 5....................          100     
                Year 6...............................           80     
                Year 7...............................           60     
                Year 8...............................           40     
                Year 9...............................           20     
                Years 10 and thereafter..............            0.    
                    ``(B) Years.--For purposes of subparagraph (A), 
                year 1 shall begin on the date of the sale or exchange 
                described in paragraph (1) or (2) of subsection (a).
            ``(3) Recapture event defined.--For purposes of this 
        subsection, the term `recapture event' means--
                    ``(A) Cessation of operation.--The cessation of the 
                operation of any property the sale or exchange of which 
                to the taxpayer is described in paragraph (1) or (2) of 
                subsection (a) as a farm for farming purposes.
                    ``(B) Change in ownership.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the disposition of a taxpayer's 
                        interest in any property the sale or exchange 
                        of which to the taxpayer is described in 
                        paragraph (1) or (2) of subsection (a).
                            ``(ii) Agreement to assume recapture 
                        liability.--Clause (i) shall not apply if the 
                        person acquiring such interest in the property 
                        agrees in writing to assume the recapture 
                        liability of the person disposing of such 
                        interest in effect immediately before such 
                        disposition. In the event of such an 
                        assumption, the person acquiring the interest 
                        in the property shall be treated as the 
                        taxpayer for purposes of assessing any 
                        recapture liability (computed as if there had 
                        been no change in ownership).
            ``(4) Special rules.--
                    ``(A) No credits against tax.--Any increase in tax 
                under this subsection shall not be treated as a tax 
                imposed by this chapter for purposes of determining the 
                amount of any credit under subpart A, B, or D of this 
                part.
                    ``(B) No recapture by reason of hardship.--The 
                increase in tax under this subsection shall not apply 
                to any disposition of property or cessation of the 
                operation of any property as a farm for farming 
                purposes by reason of any hardship as determined by the 
                Secretary.''.
    (b) Conforming Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of the Internal Revenue Code of 1986 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 on or after the date of the enactment of this 
Act, in taxable years ending after such date.
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