[Congressional Record Volume 143, Number 55 (Thursday, May 1, 1997)]
[Senate]
[Pages S3901-S3902]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. McCONNELL:
  S. 675. A bill to amend the Internal Revenue Code of 1986 to modify 
the application of the passive loss limitations to equine activities; 
to the Committee on Finance.


                  the equine tax fairness act of 1997

  Mr. McCONNELL. Mr. President, I rise today to introduce a bill to 
amend the Internal Revenue Code to modify application of passive loss 
limitations to horse activities.
  This week the eyes of the sporting world are focused on the 123d 
running of the Kentucky Derby at Churchill Downs in Louisville, KY. 
While it is considered one of the greatest sporting events in the 
world, the Kentucky Derby is part of a much larger and broader horse 
industry--one that has a $112 billion economic impact in the United 
States and supports 1.4 million jobs.
  Whether it is owning, breeding, racing, or showing horses--or simply 
enjoying an afternoon ride along the trail--1 of 35 Americans is 
touched by the horse industry. There are 6.9 million horses in the U.S. 
involving more than 7.1 million Americans as horse owners, service 
providers, employees and volunteers. In Kentucky alone, the horse 
industry has an impact of $3.4 billion, involving 150,000 horses and 
52,900 employees.
  What supports the industry--including the job base, the breeding 
farms, and the revenue stream in the form of $1.9 billion in taxes to 
all levels of government--is the investment in the horses themselves. 
The horse industry relies on outside investment to operate, just as 
other businesses do. Without others willing to buy and breed horses, 
the 1.4 million jobs supported by this industry are at stake.
  Since the Tax Reform Act of 1986, the horse industry has experienced 
a near-devastating decline with job losses occurring at racetracks, 
horse farms, and industry suppliers. In addition, hundreds of breeding 
farms have gone out of business. Most horse owners and breeders believe 
that the limits on passive losses are a major reason for the decline as 
well as for the chilled interest of investors in horses. Since the mid-
1980's, the number of horses bred and registered has decreased--leading 
to losses in jobs and revenues for the States.
  The 1986 act indicates that in order to satisfy the material 
participation requirement, a person's involvement must be regular, 
continuous, and substantial. However, the horse industry is unique, and 
the passive loss rules are difficult for some to satisfy. Because of 
the expertise and physical ability that is required, many owners cannot 
ride, train, breed and show their horses.
  The bill I introduce today will alter these requirements to make them 
fair, workable, and enforceable. I ask unanimous consent that it be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 675

       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 ``Equine Tax Fairness Act of 
     1997''.

[[Page S3902]]

     SEC. 2. APPLICATION OF PASSIVE LOSS LIMITATIONS TO EQUINE 
                   ACTIVITIES.

       (a) Determination of Material Participation.--Subsection 
     (h) of section 469 of the Internal Revenue Code of 1986 
     (defining material participation) is amended by adding at the 
     end the following new paragraph:
       ``(6) Treatment of equine activities.--
       ``(A) In general.--A taxpayer shall be treated as 
     materially participating in an equine activity for a taxable 
     year if--
       ``(i) the taxpayer's participation in such activity for 
     such year constitutes substantially all of the participation 
     in the activity of all individuals for such year, other than 
     individuals--
       ``(I) who are not owners of interest in the activity,
       ``(II) who are retained and compensated directly by the 
     taxpayer, and
       ``(III) whose activities are subject to the oversight, 
     supervision, and control of the taxpayer, or
       ``(ii) based on all of the facts and circumstances, the 
     taxpayer participates in the activity on a regular, 
     continuous, and substantial basis during such year, except 
     that for purposes of this clause--
       ``(I) the taxpayer shall not be required to participate in 
     the activity for any minimum period of time during such year, 
     and
       ``(II) the performance of services by individuals who are 
     not owners of interests in the activity shall not be 
     considered if such services are routinely provided by 
     individuals specializing in such services and such services 
     are subject to the oversight, supervision, and control of the 
     taxpayer.
       ``(B) Partners and s corporation shareholders.--Subject to 
     paragraph (2), the determination of whether a partner or S 
     corporation shareholder shall be treated as materially 
     participating in any equine activity of the partnership or S 
     corporation shall be based upon the combined participation of 
     all of the partners or shareholders in the activity.
       ``(C) Equine activity.--For purposes of this paragraph, the 
     term `equine activity' means breeding, racing, or showing 
     horses.''
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the amendments made by 
     section 501 of the Tax Reform Act of 1986.
                                 ______