[Congressional Record Volume 142, Number 92 (Thursday, June 20, 1996)]
[Senate]
[Page S6612]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY:
  S. 1895. A bill to amend the Internal Revenue Code of 1986 to allow 
certain cash rent farm landlords to deduct soil and water conservation 
expenditures; to the Committee on Finance.


                            tax legislation

 Mr. GRASSLEY. Mr. President, I introduce important tax 
legislation to improve our Nation's soil conservation and water 
quality. This measure will extend the conservation expense income tax 
deduction to farmers who improve soil and water conservation and rent 
that farmland to family members on a cash basis. This legislation 
builds upon an existing and successful income tax provision that 
applies to similar improvements on share-crop rentals. I encourage my 
colleagues to cosponsor this legislation and thereby endorse an 
environmental tax policy that uniformly encourages conservation 
improvements on our Nation's farms.
  Among all of our Nation's farmland, 4 out of 5 acres in the United 
States rely on private landowners and tenants to care for the natural 
resources. Even though all farmers should be encouraged to become good 
stewards of the land, current tax policy does not provide incentives to 
help all private landowners and tenants to make conservation 
improvements that are consistent with environmental policy. On the one 
hand, farm landlords operating on a share-crop basis are rewarded with 
an income tax deduction for soil and water conservation improvements. 
However, cash rent landlords who make the same conservation 
improvements are denied a similar income tax deduction. My legislation 
will eliminate this inequality.
  Mr. President, 43 percent of our Nation's farmland is rented. Of that 
farmland, 35 percent is rented on a share-crop basis, and 65 percent is 
rented on a cash basis. Share-crop rentals are arrangements where 
landlords typically contribute the real estate and improvements, and 
tenants contribute the labor. Cash rentals are also arrangements where 
landlords usually contribute the real estate and improvements. However, 
the landlords also contribute labor since these agreements are many 
times within a family farm environment.
  To further compare, share-crop landlords may deduct certain costs 
paid or incurred for the treatment or moving of earth for soil and 
water conservation such as leveling, conditioning, grading, and 
terracing farmland. Likewise, share-crop landlords may also deduct 
costs incurred to build and maintain drainage ditches and earthen dams. 
Cash rentals, however, are not provided a tax deduction even though 
they practice similar conservation methods. In other words, with the 
substance between these rentals being often the same, the tax treatment 
of conservation expenses is vastly different.
  Mr. President, it may surprise you to know that many family farmers 
are cash rent landlords. The life cycle of a family farm is one where 
aging parents gradually pass the family farm to their sons or 
daughters. In many cases, because the children cannot initially afford 
to purchase the family farms from their parents, a parent-child 
business relationship often starts out as a rental. Sometimes it is a 
share-crop rental, other time they agree to a cash rent relationship.
  Unfortunately, our tax and environmental policy toward these two 
relationships remains irrational. If a landlord share-crops with a 
stranger, then that landlord can deduct conservation expenditures. 
However, if a widowed farm-wife cash rents farmland to her daughter and 
watches over the grandchildren while she is in the field, the 
grandmother cannot deduct conservation expenditures. Furthermore, a 
retired father who cash rents to his son and provides labor assistance 
during harvest is denied a conservation tax deduction.
  I believe that our tax policy should encourage and reward sound soil 
conservation practices regardless of the situation of the farmers. At a 
minimum, our tax policy should reward family farmers who make long term 
soil conservation improvements to any of their farmland. In fact, these 
sound conservation practices have already aided many farmers in 
reducing our level of soil erosion. The USDA reported in its 1992 
Natural Resources Inventory that soil erosion has decreased by 1 
billion tons annually. The USDA attributes one half of that decrease to 
improved conservation efforts by farmers. Nonetheless, our Nation's tax 
policy requires that family farmers on a cash rent basis bear much of 
the expense of this successful environmental policy. My legislation 
fixes this problem. Surely, it will yield even further soil and water 
conservation of our Nation's most valuable non-renewable resource, 
farmland.

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