[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2167 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                S. 2167

 To amend the Internal Revenue Code of 1986 to authorize agricultural 
   producers to establish and contribute to tax-exempt farm savings 
 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 SENATE OF THE UNITED STATES

                            October 16, 2007

 Mr. Sessions 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 authorize agricultural 
   producers to establish and contribute to tax-exempt farm savings 
 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 Savings Account Act of 2007''.

SEC. 2. FARM SAVINGS 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 SAVINGS 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 savings 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 savings 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 savings 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 disaster assistance 
                under section 196 of the Federal Agriculture 
                Improvement and Reform Act of 1996 (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 Savings Account.--For purposes of this section--
            ``(1) In general.--The term `farm savings account' means a 
        trust created or organized in the United States as a farm 
        savings 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 savings 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 savings account 
        was established.
            ``(5) Special rules.--
                    ``(A) Federal contributions.--For purposes of this 
                title, any amount paid to a farm savings 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 savings account is exempt from 
        taxation under this subtitle unless such account has ceased to 
        be a farm savings 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 disaster assistance under section 196 of the 
        Federal Agriculture Improvement and Reform Act of 1996 (7 
        U.S.C. 7333)--
                    ``(A) all farm savings 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 savings 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 
        savings 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 savings 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 savings 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 savings 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 
                savings 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 savings 
                account of an individual, paragraph (2) shall not apply 
                to distributions from the farm savings 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 savings 
                account to the account beneficiary shall be treated as 
                a qualified distribution to the extent the amount 
                received is paid into a farm savings 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 savings 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 savings 
                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 savings 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 savings 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 savings 
                account by reason of being the designated beneficiary 
                of such account at the death of the account 
                beneficiary, such farm savings 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 savings account in a case to which 
                        subparagraph (A) does not apply--
                                    ``(I) such account shall cease to 
                                be a farm savings 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 
savings 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 (21) the following new paragraph:
            ``(22) Farm savings 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 savings account (within the meaning of section 
        224(e)),'', and
            (2) by adding at the end the following new subsection:
    ``(h) Excess Contributions to Farm Savings Accounts.--For purposes 
of this section, in the case of farm savings 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 savings 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 savings accounts.--An 
        individual for whose benefit a farm savings 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 savings 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 savings account described in section 
                224(e),''.
    (e) Failure To Provide Reports on Farm Savings 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 savings 
                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 savings 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 savings 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 savings 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 savings 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 savings accounts.--The 
        Secretary shall use the insurance fund established under 
        subsection (c) to make required contributions to farm savings 
        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>