[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1882 Introduced in House (IH)]







110th CONGRESS
  1st Session
                                H. R. 1882

 To amend the Internal Revenue Code of 1986 to authorize agricultural 
     producers to establish and contribute to tax-exempt farm risk 
  management accounts in lieu of obtaining federally subsidized crop 
 insurance or noninsured crop assistance, to provide for contributions 
   to such accounts by the Secretary of Agriculture, to specify the 
    situations in which amounts may be paid to producers from such 
  accounts, and to limit the total amount of such distributions to a 
        producer during a taxable year, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 17, 2007

   Mr. Everett (for himself, Mr. Bonner, Mr. Rogers of Alabama, Mr. 
   Cramer, and Mr. Bachus) introduced the following bill; which was 
  referred to the Committee on Ways and Means, and in addition to the 
Committee on Agriculture, for a period to be subsequently determined by 
the Speaker, in each case for consideration of such provisions as fall 
           within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to authorize agricultural 
     producers to establish and contribute to tax-exempt farm risk 
  management accounts in lieu of obtaining federally subsidized crop 
 insurance or noninsured crop assistance, to provide for contributions 
   to such accounts by the Secretary of Agriculture, to specify the 
    situations in which amounts may be paid to producers from such 
  accounts, and to limit the total amount of such distributions to a 
        producer during a taxable year, 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 ``Farm Risk Management Act of 2007''.

SEC. 2. FARM RISK MANAGEMENT ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 224 as 
section 225 and by inserting after section 223 the following new 
section:

``SEC. 224. FARM RISK MANAGEMENT ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of a qualified farmer, there 
shall be allowed as a deduction for the taxable year an amount equal to 
the aggregate amount paid in cash during such taxable year by or on 
behalf of such individual to a farm risk management account of such 
individual.
    ``(b) Minimum Contribution Requirement.--A deduction shall not be 
allowed under subsection (a) for the taxable year with respect to an 
individual if, during such taxable year, the aggregate amount 
contributed by such individual to farm risk management accounts of the 
individual is not equal to at least 2 percent of the individual's 3-
year average of income derived from farming or ranching.
    ``(c) Account Balance Limitation.--A deduction shall not be allowed 
under subsection (a) with respect to any portion of a contribution to a 
farm risk management account of an individual if such contribution 
would result in the sum of the balances in all such accounts of such 
individual to exceed 150 percent of the individual's 3-year average of 
income derived from farming or ranching.
    ``(d) Qualified Farmer.--For purposes of this section, the term 
`qualified farmer' means, with respect to any taxable year, any 
individual who, during such year--
            ``(1) was engaged in the trade or business of farming or 
        ranching,
            ``(2) has in effect an agreement with the Secretary of 
        Agriculture to accept contributions under this section in lieu 
        of--
                    ``(A) receiving, after the expiration of any 
                transition period applicable to the individual under 
                subsection (g)(2), any Federal subsidy toward the 
                premium of any crop insurance policy, or
                    ``(B) obtaining noninsured crop assistance under 
                section 196 of the Agricultural Market Transition Act 
                (7 U.S.C. 7333), and
            ``(3) does not have any federally subsidized crop insurance 
        policy, except during transition periods applicable to the 
        individual under subsection (g)(2).
    ``(e) Farm Risk Management Account.--For purposes of this section--
            ``(1) In general.--The term `farm risk management account' 
        means a trust created or organized in the United States as a 
        farm risk management account exclusively for the purpose of 
        making qualified distributions, but only if the written 
        governing instrument creating the trust meets the following 
        requirements:
                    ``(A) No contribution will be accepted unless it is 
                in cash.
                    ``(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 will be invested in 
                securities issued by the United States Treasury or in 
                such other low-risk interest-bearing securities as are 
                approved by the Secretary.
                    ``(D) The assets of the trust will not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
                    ``(E) The interest of an individual in the balance 
                in his account is nonforfeitable.
            ``(2) Qualified distribution.--The term `qualified 
        distribution' means any amount paid from a farm risk management 
        account to the account beneficiary to the extent that such 
        amount when added to all other amounts paid from such accounts 
        to such beneficiary during the taxable year (other than 
        rollover contributions) does not exceed the excess (if any) 
        of--
                    ``(A) 80 percent of such beneficiary's 3-year 
                average of income derived from farming or ranching, 
                over
                    ``(B) such beneficiary's gross income derived from 
                farming or ranching for the taxable year.
            ``(3) 3-year average of income derived from farming or 
        ranching.--The term `3-year average of income derived from 
        farming or ranching' means, with respect to any individual--
                    ``(A) the sum of the individual's gross income 
                derived from farming or ranching for the taxable year 
                and the 2 preceding taxable years, divided by
                    ``(B) the number of taxable years taken into 
                account under clause (i) during which such individual 
                was engaged in the trade or business of farming or 
                ranching.
            ``(4) Account beneficiary.--The term `account beneficiary' 
        means the individual on whose behalf the farm risk management 
        account was established.
            ``(5) Special rules.--
                    ``(A) Federal contributions.--For purposes of this 
                title, any amount paid to a farm risk management 
                account by the Secretary of Agriculture under 
                subsection (g) shall be included in the account 
                beneficiary's gross income in the taxable year for 
                which the amount was contributed, whether or not a 
                deduction for such payment is allowable under this 
                section to the beneficiary.
                    ``(B) Other rules.--Rules similar to the following 
                rules shall apply for purposes of this section:
                            ``(i) Section 219(d)(2) (relating to no 
                        deduction for rollovers).
                            ``(ii) Section 219(f)(3) (relating to time 
                        when contributions deemed made).
                            ``(iii) Section 408(g) (relating to 
                        community property laws).
                            ``(iv) Section 408(h) (relating to 
                        custodial accounts).
    ``(f) Tax Treatment of Accounts.--
            ``(1) In general.--A farm risk management account is exempt 
        from taxation under this subtitle unless such account has 
        ceased to be a farm risk management account. Notwithstanding 
        the preceding sentence, any such account is subject to the 
        taxes imposed by section 511 (relating to imposition of tax on 
        unrelated business income of charitable, etc. organizations).
            ``(2) Termination of accounts.--If the account beneficiary 
        ceases to engage in the trade or business of farming or 
        ranching, such trade or business becomes covered under any crop 
        insurance policy for which a premium subsidy is paid by the 
        Secretary of Agriculture, or the account beneficiary seeks 
        noninsured crop assistance under section 196 of the 
        Agricultural Market Transition Act (7 U.S.C. 7333)--
                    ``(A) all farm risk management accounts of such 
                individual shall cease to be such accounts, and
                    ``(B) the balance of all such accounts shall be 
                treated as--
                            ``(i) distributed to such individual, and
                            ``(ii) not paid in a qualified 
                        distribution.
    ``(g) Federal Contribution to Accounts.--
            ``(1) Contributions required.--Using amounts in the 
        insurance fund established under section 516(c) of the Federal 
        Crop Insurance Act (7 U.S.C. 1516(c)), the Secretary of 
        Agriculture shall match the contributions made for a taxable 
        year to farm risk management accounts of an individual who has 
        entered into the agreement with the Secretary required by 
        subsection (d)(2) in an aggregate amount equal to 2 percent of 
        the individual's 3-year average of income derived from farming 
        or ranching.
            ``(2) Transition periods.--Notwithstanding paragraph (1), 
        during the first 3 taxable years for which the Secretary of 
        Agriculture makes contributions under such paragraph to farm 
        risk management accounts of an individual and during the first 
        3 taxable years following any taxable year during which there 
        occurs a qualified distribution from a farm risk management 
        account of the individual, the amount contributed by the 
        Secretary may not exceed--
                    ``(A) for the first taxable year, 25 percent of the 
                amount the Secretary would otherwise contribute under 
                paragraph (1) for that taxable year,
                    ``(B) for the second taxable year, 50 percent of 
                the amount the Secretary would otherwise contribute 
                under paragraph (1) for that taxable year, and
                    ``(C) for the third taxable year, 75 percent of the 
                amount the Secretary would otherwise contribute under 
                paragraph (1) for that taxable year.
            ``(3) Crop insurance coverage.--During any transition 
        period applicable to an individual under paragraph (1), the 
        individual shall procure, as a condition of receiving 
        contributions under this subsection, at least catastrophic risk 
        protection provided under section 508(b) of the Federal Crop 
        Insurance Act (7 U.S.C. 1508(b)). During this period, the 
        individual would be covered with any claim at the same level of 
        coverage purchased, but subject to the condition that any claim 
        would first use amounts in the farm risk management accounts of 
        an individual before conventional crop insurance would make any 
        payment, if necessary.
    ``(h) Tax Treatment of Distributions.--
            ``(1) In general.--Any amount paid or distributed out of a 
        farm risk management account (other than a rollover 
        contribution described in paragraph (4)) shall be included in 
        gross income.
            ``(2) Additional tax on non-qualified distributions.--
                    ``(A) In general.--The tax imposed by this chapter 
                on the account beneficiary for any taxable year in 
                which there is a payment or distribution from a farm 
                risk management account of such beneficiary which is 
                not a qualified distribution shall be increased by 15 
                percent of the amount of such payment or distribution 
                which is not a qualified distribution.
                    ``(B) Exception for disability or death.--
                Subparagraph (A) shall not apply if the payment or 
                distribution is made after the account beneficiary 
                becomes disabled within the meaning of section 72(m)(7) 
                or dies.
            ``(3) Excess contributions returned before due date of 
        return.--
                    ``(A) In general.--If any excess contribution is 
                contributed for a taxable year to a farm risk 
                management account of an individual, paragraph (2) 
                shall not apply to distributions from the farm risk 
                management accounts of such individual (to the extent 
                such distributions do not exceed the aggregate excess 
                contributions to all such accounts of such individual 
                for such year) if--
                            ``(i) such distribution is received by the 
                        individual on or before the last day prescribed 
                        by law (including extensions of time) for 
                        filing such individual's return for such 
                        taxable year, and
                            ``(ii) such distribution is accompanied by 
                        the amount of net income attributable to such 
                        excess contribution.
                Any net income described in clause (ii) shall be 
                included in the gross income of the individual for the 
                taxable year in which it is received.
                    ``(B) Excess contribution.--For purposes of 
                subparagraph (A), the term `excess contribution' means 
                any contribution (other than a rollover contribution) 
                which is not deductible under this section.
            ``(4) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution if it meets the 
        requirements of subparagraphs (A) and (B).
                    ``(A) In general.--For purposes of this section, 
                any amount paid or distributed from a farm risk 
                management account to the account beneficiary shall be 
                treated as a qualified distribution to the extent the 
                amount received is paid into a farm risk management 
                account for the benefit of such beneficiary not later 
                than the 60th day after the day on which the 
                beneficiary receives the payment or distribution.
                    ``(B)  Limitation.--This paragraph shall not apply 
                to any amount described in subparagraph (A) received by 
                an individual from a farm risk management account if, 
                at any time during the 1-year period ending on the day 
                of such receipt, such individual received any other 
                amount described in subparagraph (A) from a farm risk 
                management account which was not included in the 
                individual's gross income because of the application of 
                this paragraph.
            ``(5) Transfer of account incident to divorce.--The 
        transfer of an individual's interest in a farm risk management 
        account to an individual's spouse or former spouse under a 
        divorce or separation instrument described in subparagraph (A) 
        of section 71(b)(2) shall not be considered a taxable transfer 
        made by such individual notwithstanding any other provision of 
        this subtitle, and such interest shall, after such transfer, be 
        treated as a farm risk management account with respect to which 
        such spouse is the account beneficiary.
            ``(6) Treatment after death of account beneficiary.--
                    ``(A)  Treatment if designated beneficiary is 
                spouse.--If the account beneficiary's surviving spouse 
                acquires such beneficiary's interest in a farm risk 
                management account by reason of being the designated 
                beneficiary of such account at the death of the account 
                beneficiary, such farm risk management account shall be 
                treated as if the spouse were the account beneficiary.
                    ``(B) Other cases.--
                            ``(i) In general.--If, by reason of the 
                        death of the account beneficiary, any person 
                        acquires the account beneficiary's interest in 
                        a farm risk management account in a case to 
                        which subparagraph (A) does not apply--
                                    ``(I) such account shall cease to 
                                be a farm risk management account as of 
                                the date of death, and
                                    ``(II) an amount equal to the fair 
                                market value of the assets in such 
                                account on such date shall be included 
                                if such person is not the estate of 
                                such beneficiary, in such person's 
                                gross income for the taxable year which 
                                includes such date, or if such person 
                                is the estate of such beneficiary, in 
                                such beneficiary's gross income for the 
                                last taxable year of such beneficiary.
                            ``(ii) Deduction for estate taxes.--An 
                        appropriate deduction shall be allowed under 
                        section 691(c) to any person (other than the 
                        decedent or the decedent's spouse) with respect 
                        to amounts included in gross income under 
                        clause (i) by such person.
    ``(i) Reports.--The Secretary may require the trustee of a farm 
risk management account to make such reports regarding such account to 
the Secretary and to the account beneficiary with respect to 
contributions, distributions, and such other matters as the Secretary 
determines appropriate. The reports required by this subsection shall 
be filed at such time and in such manner and furnished to such 
individuals at such time and in such manner as may be required by the 
Secretary.''.
    (b) Deduction Allowed Whether or Not Individual Itemizes Other 
Deductions.--Subsection (a) of section 62 of such Code is amended by 
inserting after paragraph (20) the following new paragraph:
            ``(21) Farm risk management accounts.--The deduction 
        allowed by section 224.''.
    (c) Tax on Excess Contributions.--Section 4973 of such Code 
(relating to tax on excess contributions to certain tax-favored 
accounts and annuities) is amended--
            (1) by striking ``or'' at the end of subsection (a)(4), by 
        inserting ``or'' at the end of subsection (a)(5), and by 
        inserting after subsection (a)(5) the following new paragraph:
            ``(6) a farm risk management account (within the meaning of 
        section 224(e)),'', and
            (2) by adding at the end the following new subsection:
    ``(h) Excess Contributions to Farm Risk Management Accounts.--For 
purposes of this section, in the case of farm risk management accounts 
(within the meaning of section 224(e)), the term `excess contribution' 
means the sum of--
            ``(1) the aggregate amount contributed for the taxable year 
        to the accounts (other than rollover contributions described in 
        section 224(h)(4)) which is not allowable as a deduction under 
        section 224 for such year, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the accounts with 
                respect to which additional tax was imposed under 
                section 224(h)(2), and
                    ``(B) the excess (if any) of--
                            ``(i) the maximum amount allowable as a 
                        deduction under section 224(c) for the taxable 
                        year, over
                            ``(ii) the amount contributed to the 
                        accounts for the taxable year.
        For purposes of this subsection, any contribution which is 
        distributed out of the farm risk management account in a 
        distribution to which section 224(h)(3) applies shall be 
        treated as an amount not contributed.''.
    (d) Tax on Prohibited Transactions.--
            (1) Section 4975(c) of such Code (relating to tax on 
        prohibited transactions) is amended by adding at the end the 
        following new paragraph:
            ``(7) Special rule for farm risk management accounts.--An 
        individual for whose benefit a farm risk management account 
        (within the meaning of section 224(e)) 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 farm risk management 
        account by reason of the application of section 224(f)(2) to 
        such account.''.
            (2) Section 4975(e)(1) of such Code is amended by 
        redesignating subparagraphs (F) and (G) as subparagraphs (G) 
        and (H), respectively, and by inserting after subparagraph (E) 
        the following new subparagraph:
                    ``(F) a farm risk management account described in 
                section 224(e),''.
    (e) Failure to Provide Reports on Farm Risk Management Accounts.--
Section 6693(a)(2) of such Code (relating to reports) is amended by 
redesignating subparagraphs (D) and (E) as subparagraphs (E) and (F), 
respectively, and by inserting after subparagraph (C) the following new 
subparagraph:
                    ``(D) section 224(i) (relating to farm risk 
                management accounts),''.
    (f) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 of such Code is amended by striking the last 
item and inserting the following:

``Sec. 224. Farm risk management accounts.
``Sec. 225. Cross reference.''.
    (g) Conforming Amendments to Federal Crop Insurance Act.--
            (1) Payment of portion of premium by federal crop insurance 
        corporation.--Section 508(e) of the Federal Crop Insurance Act 
        (7 U.S.C. 1508(e)) is amended by adding at the end the 
        following new paragraph:
            ``(6) Transition to farm risk management accounts.--If a 
        producer enters into an agreement under section 224 of the 
        Internal Revenue Code of 1986 to forgo any Federal subsidy 
        toward the premium of any crop insurance policy in exchange for 
        contributions by the Secretary to a farm risk management 
        account of the producer, then, in connection with the purchase 
        of any crop insurance policy during the first 3 taxable years 
        for which the Secretary makes contributions under subsection 
        (g) of such section to a farm risk management account of the 
        producer, the amount of the premium to be paid by the 
        Corporation under this subsection shall be equal to--
                    ``(A) for the first taxable year, 75 percent of the 
                amount of the premium that would otherwise be paid by 
                the Corporation under this subsection;
                    ``(B) for the second taxable year, 50 percent of 
                the amount of the premium that would otherwise be paid 
                by the Corporation under this subsection; and
                    ``(C) for the third taxable year, 25 percent of the 
                amount of the premium that would otherwise be paid by 
                the Corporation under this subsection.''.
            (2) Funding source.--Section 516(b) of such Act (7 U.S.C. 
        1516(b)) is amended by adding at the end the following new 
        paragraph:
            ``(3) Contributions to farm risk management accounts.--The 
        Secretary shall use the insurance fund established under 
        subsection (c) to make required contributions to farm risk 
        management accounts established under section 224 of the 
        Internal Revenue Code of 1986.''.
    (h) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.
                                 <all>