[Congressional Record Volume 143, Number 5 (Wednesday, January 22, 1997)]
[Senate]
[Pages S634-S640]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for himself, Mr. Dorgan, Mr. Gorton, Mr. Baucus, 
        Mr. Lott, Mr. Nickles, Mr. Gramm, Mr. Hatch, Mr. Breaux, Ms. 
        Moseley-Braun, Mr. Conrad, Mr. Kerrey, Mr. Daschle, Mr. Shelby, 
        Mr. Bumpers, Mr. Hutchinson, Mr. McCain, Mrs. Feinstein, Mr. 
        Campbell, Mr. Harkin, Mr. Craig, Mr. Kempthorne, Mr. Durbin, 
        Mr. Lugar, Mr. Coats, Mr. Brownback, Mr. Roberts, Mr. Ford, Mr. 
        McConnell, Mr. Sarbanes, Ms. Snowe, Mr. Abraham, Mr. Grams, Mr. 
        Bond, Mr. Cochran, Mr. Burns, Mr. Helms, Mr. Hagel, Mr. 
        Bingaman, Mr. DeWine, Mr. Inhofe, Mr. Wyden, Mr. Johnson, Mrs. 
        Hutchison, Mr. Warner, Mrs. Murray, Mr. Enzi, Mr. Kohl, Ms. 
        Mikulski, Mrs. Boxer, Mr. Robb, Mr. Gregg,

[[Page S635]]

        Mr. Ashcroft, and Mr. Wellstone):
  S. 181. A bill to amend the Internal Revenue Code of 1986 to provide 
that installment sales of certain farmers not be treated as a 
preference item for purposes of the alternative minimum tax; to the 
Committee on Finance.


       the family farm alternative minimum tax relief act of 1997

  Mr. GRASSLEY. Mr. President, today, as I introduce this legislation 
called the Family Farm Alternative Minimum Tax Relief Act of 1997, it 
is a way that 54 of us in this body--and we will still yet get more 
cosponsors, I am sure--are saying, ``Shame on the Internal Revenue 
Service.'' This is our effort to hold the tax-collecting bureaucracy of 
the U.S. Government accountable to what Congress intended. We are 
holding them accountable to the taxpayers, and we will reduce somewhat 
the power of the IRS which comes through intimidation. I have worked 
very closely with three other Senators in a bipartisan fashion, Senator 
Dorgan, Senator Gorton, and Senator Baucus. I thank them for their 
leadership and their cooperation. We have been joined now by 50 of our 
colleagues in a broad bipartisan effort, with the support of the 
leadership of both parties, meaning Senator Lott and Senator Daschle. I 
think that the sort of membership cosponsoring this legislation speaks 
louder, frankly, than anything I can say about the rationale behind 
this bill.
  This bill repeals a very large problem created by the IRS regarding 
farmer-deferred contract arrangements. The problem is currently at a 
crisis level because it is income tax time. Particularly, it is income 
tax time for the farmers of America who must file earlier than others.
  The IRS has found a way to tax farmers for their deferred sales 
contracts. This is contrary to congressional intent. I know the 
Presiding Officer is from Kansas and he understands this, but some 
might not. A deferred sales contract is a situation where a farmer 
delivers his crop this year and gets paid by the local cooperative 
elevator, or privately owned elevator, or some other buyer next year. 
Since Congress intends farmers to be able to use the cash accounting 
method, deferred contracts have been a perfectly acceptable method to 
defer income to another year for taxation. It has been perfectly legal 
over a long period of time.
  Now the IRS has unilaterally decided to deem these traditional 
deferred sales contracts as if, in the words of the IRS, these were 
``installment sales'' agreements. The problem is that installment sales 
are subject to the alternative minimum tax. Then, of course, by doing 
this, the IRS puts the family farmer in trouble for things that, over a 
long period of time, have been entirely legal.
  This IRS initiative is a way for the IRS to deny farmers the use of 
the cash accounting method. When Congress passed the Tax Reform Act of 
1986, it specifically intended that farmers retain the cash accounting 
method. That same act repealed the income averaging method for farmers. 
Income averaging was a way for farmers to level out their regularly 
large fluctuations of income between years. Farmers can have those 
fluctuations because, while local farmers are affected by local weather 
and the weather all over the world.
  Listen to the prices of soybeans today. You will find that whether or 
not it rains right now in Brazil or Argentina is impacting the price of 
soybeans in Iowa and Kansas. The crop prices are affected by crop 
disease and a host of other things that ordinary taxpayers take for 
granted, that farmers have no control over. When income averaging was 
repealed, Congress intended farmers to retain the cash method of 
accounting. We are here today with this bill because the IRS has 
effectively repealed cash accounting, in opposition to the intent of 
Congress.
  Cash accounting is repealed because the traditional deferred sales 
contracts are the practical application of cash accounting. By applying 
the alternative minimum tax, IRS has repealed the deferral in deferred 
contracts. They are contracts but no longer deferred income. Thus, the 
IRS has unilaterally broken the promise that Congress made to farmers, 
and our legislation rights that wrong.
  Ironically, the IRS knows it is in the wrong on this matter, but, of 
course, the IRS is going to go ahead anyway. After all, they encourage, 
from the top to the bottom of the IRS bureaucracy, auditors to go out 
and find all the income they can to tax, and to stretch the law as far 
as they can. And if they do it in this instance, in the case of taxing 
deferred sales contracts, do you think the Internal Revenue 
Commissioner or the Secretary of the Treasury is going to say to some 
auditor out there--slap their hands and say, ``You are wrong''? No, 
they are not going to do that. That would be the right thing to do, but 
they are not going to do that because that would discourage this 
attitude we have had in the IRS. They want to go out and get every 
dollar they can, even if they have to stretch the law to do it.
  Well, in a sense, the Secretary of the Treasury, Robert Rubin--and I 
thank him--and IRS Commissioner Richardson--and I thank her--have 
agreed that this problem results from what they call legislative 
oversight in 1986, because they do not want to say their auditors may 
be wrong. So, they have agreed, in the spirit of this Presidency, this 
second term of office, that we are going to be bipartisan and we are 
going to work together to solve these problems. So Secretary Rubin and 
IRS Commissioner Richardson have said they would not oppose this 
legislation. They agree that Congress did not intend for farmer 
deferred contracts to make these contract incomes subject to the AMT. 
However, as I indicated, these two individuals believe they still must 
enforce what they know to be a bad law. Hence, the urgent need for our 
legislation.
  You know, it would be really simple for the Commissioner to say, ``We 
are wrong. We are not going to collect this money.'' But they cannot do 
that, presumably.
  Not only is this ruling of the IRS effective right now and into the 
future, it is also retroactive. It is retroactive because, since it is 
a new interpretation of an old law, the IRS can pretend it has not 
changed its position, though it obviously has. Since it is retroactive, 
farmers are exposed to audit, not only for the current year and upon 
future years, but also on previous years. This problem is now in crisis 
proportions for farmers. The IRS made its retroactive change in October 
of 1996. At that time, much of the 1996 crop was already harvested. 
Farmers had already entered the traditional binding deferred contracts. 
They normally do this throughout the 12 months of the year. So, do we 
wonder why it is all of a sudden a crisis among farmers?
  Before the IRS release, farmers had every reason to believe they 
would enjoy the same legal tax treatment previously allowed by IRS.
  Congress and the President must address and solve this problem as 
soon as possible. Farmers are required to file their tax returns before 
March 1, 1997. This is unlike most other taxpayers who have until April 
15. If Congress waits until after March 1 to fix this problem, then 
hundreds of thousands of farmers all across this country will already 
have been injured.
  The IRS knows it is wrong on this issue, but it is out of control. It 
injures its own public relations by actions such as this. It is a sad 
commentary that it takes an emergency action of Congress to make the 
IRS do its job as Congress intended. Nonetheless, our bill will do 
exactly that.
  Mr. President, besides being on the Finance Committee where this 
legislation will be considered, I happen to also be a member of a 
commission the Congress set up last year to restructure the IRS. There 
are two Senators, two House Members, and 13 people from the private 
sector on that commission. We have 1 year from last fall to make our 
report to the Congress.
  The charter from the Congress to all 17 of us is to, in a sense, make 
the IRS more user friendly. Although we are at the same time kept from 
recommending changes in tax policy, how we administer the existing Tax 
Code is what we are dealing. We are examining how the IRS does its work 
and what we can do to enhance that from an efficiency standpoint. We 
want to save the taxpayers money and also to make IRS more customer 
friendly.
  After 6 months of being on this commission--though the ultimate good 
is

[[Page S636]]

making the IRS more efficient and more customer friendly--it is my 
opinion that we need to make the Tax Code so simple that every single 
taxpayer understands the Tax Code as well as any IRS auditor 
understands that Tax Code. The complexity of the Tax Code gives the IRS 
its power. It is the mystery of the Tax Code, a mystery that the 
bureaucrat can sort through and understand, and the inability of the 
taxpayer to do that which brings the power of the auditor that gives 
IRS its power. The power to intimidate comes through the tax system.
  So I ask my colleagues to observe the action of the commission to 
restructure the IRS and work with Senator Kerrey from Nebraska and 
myself as representatives of the Senate on this issue. Let us know your 
opinions, but also understand that the complexity of the Tax Code is 
the major problem that we must fix. The bill that I am introducing 
today is just one very small example of the complexity of the Tax Code. 
It is an action against the intimidation of the IRS and impacts. In 
most cases, IRS usually attacks maybe just a few hundred taxpayers 
throughout the United States on some issues. On this particular issue, 
affecting a practice that has been legal by the farmers of the United 
States of America for decades, they are attacking thousands and 
thousands. They want farmers to think that all of a sudden what they 
have been doing is now presumably wrong.
  I hope that Congress will work very quickly to pass this legislation 
before that March 1 deadline. It is badly needed to prevent an 
irreparable injury to farmers, and to make the Tax Code more 
understandable for the taxpayers. We also are sending a clear signal to 
the IRS: Shame on you.
  Mr. President, I ask unanimous consent that additional material be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 181

       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 ``Family Farm Alternative 
     Minimum Tax Relief Act of 1997''.

     SEC. 2. MINIMUM TAX NOT TO APPLY TO FARMERS' INSTALLMENT 
                   SALES.

       (a) In General.--The last sentence of paragraph (6) of 
     section 56(a) (relating to treatment of installment sales in 
     computing alternative minimum taxable income) is amended to 
     read as follows: ``This paragraph shall not apply to any 
     disposition--
       ``(A) in the case of a taxpayer using the cash receipts and 
     disbursements method of accounting, described in section 
     453(l)(2)(A) (relating to farm property), or
       ``(B) with respect to which an election is in effect under 
     section 453(l)(2)(B) (relating to timeshares and residential 
     lots).''
       (b) Effective Dates.--
       (1) In general.--The amendment made by this section shall 
     apply to taxable years beginning after December 31, 1987.
       (2) Special rule for 1987.--In the case of taxable years 
     beginning in 1987, the last sentence of section 56(a)(6) of 
     the Internal Revenue Code of 1986 (as in effect for such 
     taxable years) shall be applied by inserting ``or in the case 
     of a taxpayer using the cash receipts and disbursements 
     method of accounting, any disposition described in section 
     453(l)(2)(A)'' after ``section 453C(e)(4)''.
                                  ____

                                       Department of the Treasury,


                                     Internal Revenue Service,

                                Washington, DC, December 19, 1996.
     Hon. Charles E. Grassley,
     U.S. Senate,
     Washington, DC.
       Dear Senator Grassley: Thank you for giving me the 
     opportunity to meet with you to discuss your concerns about 
     an Internal Revenue Service Technical Advice Memorandum or 
     TAM concerning the tax treatment of farmers. The TAM stated 
     that farmers utilizing deferred payment contracts for the 
     sale of farm commodities were required to include the amount 
     of the advanced sale for Alternative Minimum Tax or AMT 
     purposes in the year of sale.
       As I told you in our meeting, we believe that this TAM 
     correctly interprets current law. I understand that Congress 
     may consider legislation early next session to change this 
     result for farmers who use the cash method of accounting. As 
     you may be aware, Secretary Rubin, in a letter to Senator 
     Daschle on the same issue, stated the following regarding 
     this legislative change, ``We would support the goals of this 
     effort, as a reasonable tax policy, and recognize it is 
     likely that Congress was not aware of the effect that its 
     1986 amendments to the AMT would have on farmers. I welcome 
     the opportunity to work with you to address this matter 
     through corrective legislation.''
       We also will be pleased to work with you and Treasury on 
     the corrective legislation. Please feel free to contact me if 
     I can be of any further assistance.
           Sincerely,
                                        Margaret Miner Richardson.

  sMr. DORGAN. Mr. President, today Senator Grassley and I are 
introducing legislation called the Family Farm Alternative Minimum Tax 
Relief Act. This legislation deals with a tax matter affecting farmers 
that is a foreign subject to some people. But, simplified, what has 
happened is the Internal Revenue Service has turned logic on its head 
and said to family farmers, ``We're going to ask you to pay taxes on 
income you have not yet received.'' There is no basis for them doing 
that. That is not what we ever intended them to do.
  It is not the way they interpreted the law previously or the 
instructions for IRS auditors and accountants all across the country or 
farmers across the country, but they have now decided to change the way 
they do business. The brain is apparently disconnected from the hand, 
and the hand writes that farmers should pay taxes on income they have 
not received.
  I introduced the first piece of legislation on this. The Senator from 
Washington pointed out it was introduced in the House. But 18 months 
before it was introduced in the House in the last Congress, I 
introduced legislation to try to correct this.
  When we introduced it today, Senator Grassley from Iowa and I have 
organized a group of 54 Senators who support this legislation, 
including the cosponsorship of the Republican leader and the Democratic 
leader, including the support of the Treasury Secretary and of the 
agricultural community.
  We are going to pass this. It ought not be necessary for us to pass 
this legislation, because the IRS should not have made the mistake it 
made. It should not have turned logic on its head. But we must pass it 
because in this country when the IRS makes a mistake, everybody pays. 
Somebody once said, ``You have a right to be wrong in America.'' But 
the IRS does not have that right. When they are wrong in this case, 
family farmers are going to have to pay unfairly. And we are going to 
change that.
  Mr. President, today I'm joined by Senator Grassley and a majority of 
our colleagues in the Senate in reintroducing my legislation to rectify 
a serious tax problem confronting our family farmers.
  The Internal Revenue Service [IRS] has, in my opinion, mistakenly 
taken a position that threatens to hit many farmers with huge tax bills 
for using deferred payment commodity contracts, which have been 
routinely used in their businesses for decades. In my judgment, the 
IRS's position is dead-wrong and is going to impose an unintended and 
unacceptable financial hardship on the farming industry.
  For years, family farmers have used deferred payment contracts to 
sell their commodities in order to better manage their business income. 
For example, a typical grain contract between a farmer and grain 
elevator calls upon a farmer to sell and deliver grain to a grain 
elevator--often because the farmer does not have adequate storage--for 
a fixed amount. In many cases, one or more payments paid by the 
elevator to the farmer under the contract occur after the close of the 
farmer's taxable year.
  For regular tax purposes, farmers are allowed to defer income from 
the deferred payments under the grain contracts in computing their 
regular tax liability. But because the IRS apparently now views all 
deferred payment grain contracts as installment sales, it now requires 
them to add back this income in computing the Alternative Minimum Tax 
[AMT] in the tax year preceding the year of payment. As a result, 
thousands of family farmers are potentially facing hefty tax bills 
because they are being whip-sawed by a new IRS policy which effectively 
repeals their ability to use such contracts, and to benefit from the 
cash basis method of accounting.
  To make matters worse, many farmers were advised by tax experts and 
IRS field representatives, for that matter, that some traditional 
deferred payment commodity contracts will not amount to an installment 
sale that would require an AMT calculation. For this reason, many 
farmers have not made AMT adjustments on their income tax returns. Now 
they are being

[[Page S637]]

told by the IRS that they may owe large tax bills on income that they 
will not receive until later. This position is based upon an incorrect 
interpretation by the IRS which ignores the fact that our family 
farmers are, by law, permitted to manage their business operations on a 
cash basis.
  That's why we are reintroducing my legislation from the last Congress 
to ensure that our family farmers are allowed to engage in deferred 
payment transactions and get the same kind of tax treatment they have 
always received.
  We do not believe that Congress intended this kind of tax treatment 
for farmers using deferred payment commodity contracts for legitimate 
business purposes. Moreover, Treasury Department officials, who agree 
that this misguided IRS position was likely not the intent of Congress, 
support the goals of this effort as ``reasonable tax policy, and * * * 
welcome the opportunity to work with Congress to address this matter 
through corrective legislation.''
  Our bill simply makes clear the original intent of Congress which is 
to allow farmers to continue to receive the tax benefit provided from 
the use of cash method accounting and from installment sales for their 
deferred payment transactions.
  I urge my colleagues to include this much-needed legislation--which 
is strongly supported by the agricultural community--in any revenue 
measure considered by the Senate this year. This measure needs to be 
considered quickly to resolve any lingering doubt about the correct tax 
treatment for farmers using deferred commodity contracts.
  Mr. ABRAHAM. Mr. President, today I join several of my colleagues in 
cosponsoring the Family Farm Alternative Minimum Tax Relief Act of 
1997. This legislation will permit farmers to continue to defer tax 
liability through the use of deferred payment contracts.
  Like other businesses, farmers are subject to the same peaks and 
valleys in consumer demand that govern product pricing and earned 
income. Unlike other businesses, however, farmers are also subject to 
the uncertainties of Mother Nature. In agriculture, poor growing 
seasons are inevitable. Probably every farmer has had a crop devastated 
by harsh weather or been challenged to feed their livestock because of 
resulting shortages.
  The ability to defer tax liability on deferred payment contracts 
helps farmers prepare for these difficult times. To put it simply, 
deferred payment contracts allow farmers to receive a portion of 
payment on a crop in the next year. In addition to deferring payment, 
farmers also defer their resulting tax liability to the following year. 
Deferring payments and tax liabilities is a limited form of income 
averaging that allows individuals to cope with seasonal difficulties.
  Now, a recent IRS decision has put this important economic tool in 
jeopardy. The IRS has stated that payments made under a deferred 
payment contract are subject to the Alternative Minimum Tax [AMT]. 
Under the IRS ruling, taxes on the latter year's payments are now due 
in the first year of the contract. With the sudden repeal of deferred 
tax liability, farmers all across the country now face unexpected, 
sizable tax bills and many could be driven out of business. This is 
absolutely unacceptable.
  Mr. President, for the sake of this Nation's farmers, the IRS 
interpretation must be repealed. Since 1986, the only tool left for 
deferring tax liability has been the use of deferred payment contracts. 
In just the last 4 years, however, farmers in the midwest have suffered 
one of the centuries worst floods, the west has endured a terrible 
drought and last year, a long winter and tremendous rainfall 
significantly reduced Michigan's drybean, soybean, corn, and wheat 
harvests.
  The Family Farm Alternative Minimum Tax Relief Act of 1997 will 
permit farmers to continue to defer tax liability through the use of 
deferred payment contracts and I am pleased to be a cosponsor. With tax 
time fast approaching, I hope that this bill can be acted upon by both 
Chambers of Congress and sent to the President for his signature as 
soon as possible.
  Mr. President, the President of the Michigan Farm Bureau, Jack 
Laurie, recently explained the significance of the IRS's ruling in the 
Michigan Farm Bureau's Farm News. I think this article illustrates 
clearly the reasons why this legislation is necessary and I ask 
unanimous consent that this article be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

           Recent Tax Policy Issues Profound for Agriculture

       As the year draws to a close, many of us will be making 
     crucial tax management decisions as a normal course of 
     business. Making advance purchases of inputs for next year, 
     delaying sales, and/or deferred payment contracts allow 
     producers to manage tax burdens in good and in bad years.
       Tax code provisions, such as cash accounting and deferred 
     payment contracts, provide important financial and tax 
     management tools for producers. Recognizing the impact of 
     budget cuts for agricultural programs, Congress included 
     language in the 1996 budget resolution that pledged to 
     reexamine agricultural cuts unless, among other things, 
     Congress acted to provide mechanisms to allow farmers to 
     average tax loads over strong and weak income years.
       Several pieces of Farm Bureau-supported legislation to 
     allow income averaging were considered by the 104th Congress 
     but were not enacted into law. Farm Bureau will be working to 
     secure their passage as the bills are reintroduced next year.
       Farm Bureau supports the option of cash accounting for 
     farmers and the continuation and expansion of tax code 
     provisions that allow farmers to match income with expenses. 
     Farm Bureau also supports the reinstatement of income 
     averaging for farm income and the creation of ``farmer 
     savings plans,'' which would allow farmers to put money into 
     a pre-tax account for use during emergencies.
       Farmers are also at risk of losing another tax management 
     tool, thanks in large part to a recent change in tax policy 
     interpretation by the Internal Revenue Service in how the 
     agency will treat deferred payments. Recent rulings in 
     Washington state and in Iowa penalize farmers attempting to 
     average their income and tax burdens from year to year 
     through the use of deferred payment contracts.
       The IRS has begun classifying deferred payment contracts as 
     a tax preference by allowing farmers to delay income through 
     deferred payment contracts for their regular tax calculation 
     but not for their Alternative Minimum Tax calculation, which 
     can result in additional tax liabilities for farmers.
       Several farmers in Washington state and Iowa are currently 
     being examined by the IRS regarding the use of forward 
     contracting in the sale of their crops. At least 35 
     Washington farm families are currently in IRS appeals 
     awaiting the opinion of the Tax Court. Commodities included 
     in the proposed adjustments include sweet corn, beans, hogs, 
     potatoes, onions, and various seed crops.
       Why is the IRS pursuing this issue? The answer is pretty 
     simple. By disallowing farmers to defer income into the next 
     year via deferred payment, they essentially throw two years 
     of income into one year. This in turn increases the amount of 
     taxes due, significantly, in some cases. There has been no 
     change in the law, only a change in the IRS interpretation.
       Legislation was introduced last year to provide that 
     installment sales not be treated as preference with respect 
     to the Alternative Minimum Tax. This language would have 
     retroactively exempted farmers who entered into deferred 
     payments contracts from being subject to Alternative Minimum 
     Tax.
       Unfortunately, this legislation did not pass. However, 
     there is already a movement underway to pursue this issue 
     again at the start of the next congressional session. Several 
     senators from Iowa, North Dakota, Montana, and Washington 
     will introduce legislation in January to clarify that 
     deferred payment contracts are not a tax preference item that 
     subjects farmers to AMT.
       Michigan Farm Bureau will be working to secure the support 
     of Sens. Carl Levin and Spencer Abraham for this legislation. 
     As you go through the process of completing your farm books 
     and begin tax preparation, I encourage you to take a moment 
     to let your respective U.S. Representative and both of your 
     Senators know how vital these tax management tools are and 
     what their loss will mean to your operation.
           Sincerely,
                                                      Jack Laurie,
                                                        President.

  Mr. CAMPBELL. Mr. President, today my colleagues, Senators Chuck 
Grassley and Byron Dorgan, introduced legislation which will correct a 
tax problem facing many farmers across the country, including many in 
the State of Colorado. Along with over 40 of my Senate colleagues, I am 
pleased to join Senators Grassley and Dorgan as an original cosponsor 
to this bill.
  Farmers have typically used the deferred payment contract system as a 
means for managing their business income. It is common for a farmer to 
forward contract to sell a product. Under this type of contract, a 
farmer may deliver the product in a given tax year, and he may not 
receive one lump-sum

[[Page S638]]

payment at the time of delivery. In fact, the payments may be spread 
over 2 tax years.
  Up until recently, the farmer was taxed on this income only for the 
actual amount received in a given tax year. However, last October, the 
Internal Revenue Service issued a ruling which disallows this practice. 
Under the ruling, all payments received under a deferred payment 
contract are subject to the Alternative Minimum Tax. Now, regardless of 
whether the actual payments under the contract are spread out over a 
multiple year period, the payments will be taxable in the year the 
contract is made.
  Needless to say, this ruling requiring farm families to pay a tax on 
income they have not yet received places an unfair burden on those 
families. Farmers cannot control the weather, especially in Colorado 
where farmers fall victim to everything from tornados to droughts. 
Because of the uncertainties inherent in farming, deferred payment 
contracts offer farmers a critical financial management tool. We must 
allow them to manage the risks without unfairly penalizing them.
  With the farmers' early filing deadline looming on the horizon, there 
is a need to act upon this legislation as quickly as possible. Many 
farmers are already calculating their taxes for their early deadline 
and without a reversal of the IRS' ruling, they will be forced to 
comply at what will no doubt be a severe financial burden for many.
  I urge my colleagues to support this important piece of legislation 
and pass it in a timely manner.
  Mr. GRASSLEY. Mr. President, I yield 5 minutes to the Senator from 
Minnesota. I thank him for his cosponsorship of this legislation, 
because in the State of Minnesota obviously he has, as in my State of 
Iowa, many farmers who are affected by the action of the IRS. I yield 5 
minutes.
  Mr. GRAMS. Thank you very much.
  Mr. President, I rise in strong support of the bill introduced today 
by my colleagues, Senator Grassley and Senator Dorgan, to clarify the 
intent of Congress and to allow farmers and ranchers to use deferred 
payment contracts without tax penalty under the alternative minimum 
tax.
  Last year this Congress passed, and the President signed, the most 
sweeping reforms in agricultural policy in 60 years, giving our farmers 
and ranchers the freedom to farm. Farmers can now plant for the market, 
not for Uncle Sam.
  But our commitment to agriculture did not--and cannot--end there. We 
promised farmers and ranchers regulatory reform, free and fair trade, 
market-oriented tools to better manage their risk, and tax relief. 
Unfortunately, the Internal Revenue Service has caused us to radically 
depart from this commitment in regard to tax relief. By ruling that 
producers are subject to tax liability on deferred payment contracts in 
the year the contract is signed, instead of when he or she actually 
receives the payment, the IRS has dealt American agriculture a very 
serious blow.
  Cash-based accounting, as it is often called, is extremely important 
to Minnesota farmers because incomes fluctuate so radically from year 
to year depending on what Mother Nature decides to unleash on us. This 
is especially important in my home State of Minnesota because, as many 
of you know, some say it is the land of 9 months of winter and then 3 
months of poor sledding.
  But adding further to the importance of cash-based accounting is the 
fact that farmers and ranchers are only paid once or twice a year. 
Understandably, many farmers and ranchers like to receive their 
payments in installments. And that is much the way school teachers do 
over the summer months. Getting paid in increments can ease their cash 
flow problems that might otherwise occur.
  Congress, to its credit, has always understood these unique 
circumstances and therefore always intended agriculture to have the 
benefit of cash-based accounting. As late as 1980, Congress reaffirmed 
this. But according to the IRS, this all changed in amendments to the 
Tax Code in 1986. I disagree. Without rehashing all of the arguments of 
why this decision is in error, let me offer just one.
  As one Rutgers University tax law professor observed, had this been 
the intent of the proposed changes to the Tax Code in 1986, surely 
there would have been large-scale opposition at that time. And, no 
doubt, the opposition would have been spearheaded by Senator Grassley, 
who sits on the tax writing committee. But there was not a word about 
it. Maybe that is why it took the IRS a decade to find out why.
  None of us want to point fingers at who is responsible for this 
mistake. We only want congressional intent carried out. If the most 
efficient way of accomplishing this end is to pass legislation to 
clarify things, then that is what we should do.
  Mr. President, I am proud to be an original cosponsor of this bill. I 
commend Senators Grassley and Dorgan for their leadership on this 
issue. I urge timely consideration and passage of this extremely 
important bill.
  Mr. GORTON. Mr. President, the Senator from Iowa, Mr. Grassley, my 
friend Senator Dorgan from North Dakota, who is on the floor, and I and 
51 other Senators have introduced today a bill on the alternative 
minimum tax as it is being unjustly and without precedent applied to 
farmers in all of our States and across the United States of America.
  In short, farmers are now being told that they must pay taxes on 
income that they have not received. I repeat that, Mr. President. Our 
farmers are now being told by the Internal Revenue Service that they 
are to pay taxes on income that they have not received when they have 
transferred ownership of their crops to some other entity but are not 
to receive payment for those crops until the next tax year.

  Mr. President, that is unprecedented. It is unjust. It is a terrible 
burden on many farmers who live under difficult circumstances and from 
hand to mouth. And it is not what Congress has intended in any of its 
amendments to the Internal Revenue Code.
  It is wrong, Mr. President. It was discovered or started initially, I 
regret to say, in the State of Washington last year aimed against a 
particular potato farmer. It has now spread like wildfire all across 
the country and it has become the policy of the Internal Revenue 
Service.
  A year ago, one Member of the House of Representatives from my State, 
George Nethercutt, introduced a bill on this without it being able to 
attain the attention that has been focused on it since that time. As I 
said, there are now 54 Members of this body who are sponsors of this 
bill to bring pure justice back to the administration of the Internal 
Revenue Code as it respects our farmers.
  I am convinced that as soon as we have a revenue bill from the House, 
which under the Constitution must deal with such a bill first, that we 
will pass this proposal almost unanimously. Mr. President, so far we 
have no revenue estimate on it. It was estimated last year to be 
minimal because of course these taxes will in fact be collected when 
the cash is received by the farmers.
  Farmers are not attempting through this bill to avoid a tax 
obligation. They are simply asking for the simple justice that that tax 
obligation not be imposed upon them until they have received the income 
on which the obligation is based.
  It is for that reason and under the leadership of the Senator from 
Iowa and the Senator from North Dakota, who is here and whom I believe 
is next, that this bill is drafted, that we have made this proposal. We 
have now received the support of Mr. Rubin, the Secretary of the 
Treasury.
  I do not know of any reasonable opposition or, for that matter, any 
opposition at all to doing justice in this case. I am delighted we have 
such strong support for this bill. I urge not only action on this bill, 
Mr. President, but the promptest action possible for the Senate to 
remedy an injustice against our farmers.
  Mr. ENZI. Mr. President, I, too, join my new colleagues in 
cosponsoring this legislation. It is important that we act on this 
legislation before April 15 to correct a ruling by the Internal Revenue 
Service regarding the alternative minimum tax. It is a ruling that 
could dramatically and unfairly increase the tax burden on our farmers 
who use the cash method of accounting and who utilize installment sales 
on crops and livestock.

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  It is interesting to me that this tax problem is one of the first 
issues needing legislative correction to present itself to the 105th 
Congress. It is interesting because the problem arises in the areas of 
small business and accounting, two areas in which I feel I have some 
particularly relevant insight. I am a small businessman and an 
accountant--the only accountant in the Senate, in fact.
  I have wondered for a long time why United States tax policymakers 
continue to subject small business owners to the onerous burden of 
calculating both corporate and alternative minimum tax liabilities. The 
fact is that fewer than 2 percent of the companies filing Federal 
income tax returns end up paying the alternative minimum tax. Still, 
all of these companies, many of them small businesses, have to maintain 
separate sets of records for tax purposes, and that is at a 
considerable cost.
  In 1993, a Joint Tax Committee analysis confirmed what I as a small 
business owner and corporate accountant already knew, that compliance 
with the alternative minimum tax requirements can add 15 to 20 percent 
to a company's accounting bills at tax time. The effect is that we bury 
100 percent of our small businesses in paperwork in order to increase 
tax revenue for about 2 percent of corporate tax filers. If that is not 
an unnecessary burden, I do not know what is.
  The legislation that is introduced today will amend the 1986 Tax 
Reform Act to clarify confusion that was unintentionally created by the 
revenue act of 1987. I do not blame the IRS for the position it takes 
in the technical advice memorandum filed in 1995, which states that 
installment sales of farm property are not exempt from the alternative 
minimum tax liability in the year that it is expensed. It is the job of 
the IRS to maximize tax revenue within the confines of the 
congressionally approved statutes. The question then is, did Congress 
intend to subject cash receipts on forward commodity sales to a 
farmer's prior year alternative minimum tax? I do not believe that the 
99th Congress intended to do that. For 10 years the IRS has not applied 
this rule in this way. To do so now is a retroactive tax increase on 
farmers. We, the 105th Congress, should make the necessary 
clarifications and pass this bill.
  I believe the bill will pass because reasonable people can recognize 
simple facts and should agree to correct the problem. I am proud to be 
a cosponsor of the legislation, but I also hope that it will renew 
interest in reviewing the issue of alternative minimum tax reform in 
general. One of the issues I promised my constituents I would pursue if 
elected to the Senate is simplification of the U.S. Tax Code, and I 
believe that the phaseout of the alternative minimum tax is a necessary 
part of that promise. The alternative minimum tax inhibits capital 
investment, ties up resources and credits, and piles unnecessary 
compliance costs particularly on small business. It actually produces 
relatively small amounts of Federal revenue, not all of which would be 
foregone using regular tax computation.
  The problem this bill would correct typifies the difficulties small 
business owners in our country have complying with this onerous AMT 
law. I was pleased that the last Congress was able to achieve consensus 
on a very good AMT reform bill, a bill that unfortunately became 
entangled in the highly emotional web of election year politics and 
subsequently suffered a swift death at the hands of the President.
  I do believe we can and should move toward a more sensible corporate 
tax system, and I hope the administration is willing to work with us on 
that.
  Mr. DASCHLE. Mr. President, I would like to express my strong support 
for the legislation Senators Grassley and Dorgan are introducing today. 
The bill addresses one of the most pressing problems facing many family 
farms, and I am proud to cosponsor it.
  Last fall, the IRS released a technical memorandum calling into 
question the tax treatment of deferred crop sales. Released during the 
harvest just as farmers were making marketing decisions, this apparent 
shift in policy created enormous confusion in the farm community. I say 
apparent shift in policy because, strictly speaking, the technical 
advice memorandum applies only to one taxpayer; the IRS has yet to 
issue a formal revenue ruling on the matter as guidance for all 
taxpayers.
  It has been a long-standing and common practice for farmers to sell 
their crops on a deferred basis. Farmers often delay their receipts 
from commodity sales into future years in order to maximize their 
marketing opportunities and average their incomes over good and bad 
years. The legal basis for these deferred contracts dates at least as 
far back as an IRS revenue ruling issued in 1958.
  Congress has repeatedly expressed its intention that smaller farms be 
permitted to manage their affairs on a cash-basis system of accounting. 
If implemented, the policy described in the IRS memorandum would have 
the effect of eliminating this important tool for many family farmers.
  In my view, the IRS has mistakenly interpreted tax law and 
legislative history in arriving at the conclusion that deferred 
contract receipts are a ``preference'' for purposes of calculating 
alternative minimum tax liability. I and a number of my colleagues 
communicated this directly to the Secretary of the Treasury last month, 
and he agreed to support legislation to correct the problem.
  Mr. President, I would hope that we could obtain agreement on both 
sides of the aisle to pass this legislation as promptly as possible. 
Doing so could save many families tens of thousands of dollars this 
winter--money they never anticipated owing to the government.
  On November 21st of last year, I asked the Treasury Department to 
either suspend the application or narrow the scope of the IRS 
memorandum in order to prevent this from happening. Today, I would like 
to call publicly on the IRS to reconsider its resistance to my request. 
The Treasury Department supports our effort to fix this problem 
legislatively, and half of the Senate is cosponsoring the Grassley-
Dorgan bill. Why force taxpayers to pay money this winter that they in 
good faith never thought they owed, and then place them in the position 
of having to file an amended return to get their money back when the 
legislation passes later this year? Surely, there must be a better way, 
and, in the interest of taxpayer service, I urge the IRS to try to find 
it.
  Let's not forget that farmers are the backbone of rural America and 
one of the foundations of our economy. Family farmers tell me often of 
the hardships they face in managing businesses that are often as 
unpredictable as the weather. The apparent change in IRS policy on 
deferred commodity contracts does not help matters.
  I congratulate Senators Grassley and Dorgan on their legislation and 
look forward to working with them to secure its speedy passage.
  Mr. SARBANES. Mr. President, I am pleased to join as an original 
cosponsor of the Family Farmer Alternative Minimum Tax Relief Act of 
1997. This legislation will provide relief for family farmers from a 
recent Internal Revenue Service decision regarding deferred payment 
contracts which could result in sizable and unexpected tax bills for 
the coming year.
  For over 16 years, family farmers in Maryland and across the country 
have used deferred payment contracts to sell their crops and livestock 
in order to better manage and even out their business income from year 
to year. The tax code has specifically permitted farmers to manage 
their business on a cash basis of accounting and use deferred payment 
contracts without AMT liability. However, a recent IRS decision to 
enforce alternative minimum taxation on all crop and livestock sales, 
including deferred payment contracts, effectively repeals farmers' 
ability to use these contracts to move their tax liability into future 
years. If relief is not soon provided, many family farmers will face 
sizable--and unexpected--tax bills for the coming tax year. The purpose 
of this legislation is to clarify the law and ensure that family 
farmers can continue to receive the tax benefit provided from the use 
of the cash method of accounting and from installment sales for their 
deferred payment commodities contracts as Congress originally intended.
  I hope the committee will schedule hearings on this matter as quickly 
as possible so that this legislation can be

[[Page S640]]

enacted prior to the taxation filing deadline. I urge my colleagues to 
join me in supporting this important legislation.
                                 ______