[Congressional Record Volume 145, Number 42 (Wednesday, March 17, 1999)]
[Senate]
[Pages S2845-S2847]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for himself, Mr. Baucus, Mr. Roberts, Mrs. 
        Hutchison, Mr. Burns, Mr. Breaux, Mr. Hatch, Mr. Kerrey, Mr. 
        McConnell, Mrs. Feinstein, Mr. Craig, Mr. Sessions, Mr. Allard, 
        Mr. Lugar, Mr. Gramm, Mr. Campbell, Mr. Hagel, Mrs. Murray, and 
        Mr. Grams):
  S. 642. A bill to amend the Internal Revenue Code of 1986 to provide 
for Farm and Ranch Risk Management Accounts, and for other purposes; to 
the Committee on Finance.


                   farm and ranch risk management act

 Mr. GRASSLEY. Mr. President, today, along with Senator Baucus 
and others, I am introducing the Farm and Ranch Risk Management Act of 
1999. This bill gives farmers a necessary tool to manage the risk of 
price and income fluctuations inherent in agriculture. It does this by 
encouraging farmers to save some of their income during good years and 
allowing the funds to supplement income during bad years. This new tool 
will more fully equip family farmers to deal with the vagaries of the 
marketplace.
  Farming is a unique sector of the American economy. Agriculture 
represents one-sixth of our Gross Domestic Product. It consists of 
hundreds of thousands of farmers across the nation, many of whom 
operate small, family farms. These farms often support entire families, 
and even several generations of a family. They work hard every day to 
produce the food consumed by this country and by much of the world.
  Yet, farming remains one of the most perilous ways to make a living. 
The income of a farm family depends, in large part, on factors outside 
its control. Weather is one of those factors. In 1997, for instance, 
the income of North Dakota farmers dropped 98% due to flooding. Weather 
can completely wipe out a farmer. At best, weather can cause a farmer's 
income to fluctuate wildly.
  Another factor is the uncertainty of international markets. Iowa 
farmers now export 40% of all they produce. But what happens, for 
example, when European countries impose trade barriers on beef, pork 
and genetically-modified feed grain? And what happens when Asian 
governments devalue their currencies? Exports fall and farm income 
declines through no fault of the farmer, but because of decisions made 
in foreign countries.
  Today, farm families face their most severe crisis since the 1980's. 
Forces beyond the control of the individual farmer have led to record 
low prices for grain and livestock. The outlook for these families is 
dismal. Above normal production in 1998 led to nearly unprecedented 
grain surpluses. In fact, the USDA predicts soybean carry-over stocks 
will be 95% higher for the 1998-

[[Page S2846]]

99 marketing season than for the same period last year--the largest 
since 1986. With this much grain in the bins, a quick recovery in grain 
prices is highly unlikely.
  At present, the only help for these farmers is a reactionary policy 
of government intervention. The USDA recently committed $50 million in 
direct aid to hog producers to help them combat the current crisis. In 
his State of the Union Address, the President pledged additional 
support for farmers. While we must do all we can to help farmers pull 
through the current crisis, we must also realize that this aid is 
merely a short-term solution. Why must farm families wait for a crisis 
before getting the help they need?
  Mr. President, the bill I am introducing today is a proactive measure 
that will help farmers prevent future crises on their own. It equips 
them with the ability to offset cyclical downturns that are inherent in 
their profession without government intervention. In that way, this 
bill is complementary with the philosophy of the new farm program. Many 
farmers I have talked to are pleased with the new program, which 
returned business decisions to the farmers, not bureaucrats at the 
Department of Agriculture, and not elected officials. Under the new 
program, farmers determine for themselves what to plant according to 
the demands of the market. Likewise, the Farm and Ranch Risk Management 
Act allows the farmer to decide whether to defer his income for later 
years and when to withdraw funds to supplement his operation.
  The volatile nature of commodity markets can make it difficult for 
family farmers to survive even a normal business cycle. When prices are 
high, farmers often pay so much of their income in taxes that they are 
unable to save anything. When prices drop again, farmers can be faced 
with liquidity problems. This bill allows farmers to manage their 
income, to smooth out the highs and lows of the commodity markets.
  Mr. President, I will take just a moment to explain how the bill 
works. Eligible farmers are allowed to make contributions to tax-
deferred accounts, also known as FARRM accounts. The contributions are 
tax-deductible and limited to 20% of the farmer's taxable income for 
the year. The contributions are invested in cash or other interest-
bearing obligations. The interest is taxed during the year it is 
earned.
  The funds can stay in the account for up to five years. Upon 
withdrawal, the funds are taxed as regular income. If the funds are not 
withdrawn five years after they were invested, they are taxed as income 
and subject to an additional 10% penalty.
  Essentially, the farmer is given a five-year window to manage his 
money in a way that is best for his own operation. The farmer can 
contribute to the account in good years and withdraw from the account 
when his income is low.
  This bill helps the farmer help himself. It is not a new government 
subsidy for agriculture. It will not create a new bureaucracy 
purporting to help farmers. The bill simply provides farmers with a 
fighting chance to survive the down times and an opportunity to succeed 
when prices eventually increase.
  Mr. President, I ask that the bill be printed in the Record.
  The bill follows:

                                 S. 642

       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 and Ranch Risk 
     Management Act''.

     SEC. 2. FARM AND RANCH RISK MANAGEMENT ACCOUNTS.

       (a) In General.--Subpart C of part II of subchapter E of 
     chapter 1 of the Internal Revenue Code of 1986 (relating to 
     taxable year for which deductions taken) is amended by 
     inserting after section 468B the following new section:

     ``SEC. 468C. FARM AND RANCH RISK MANAGEMENT ACCOUNTS.

       ``(a) Deduction Allowed.--In the case of an individual 
     engaged in an eligible farming business, there shall be 
     allowed as a deduction for any taxable year the amount paid 
     in cash by the taxpayer during the taxable year to a Farm and 
     Ranch Risk Management Account (hereinafter referred to as the 
     `FARRM Account').
       ``(b) Limitation.--The amount which a taxpayer may pay into 
     the FARRM Account for any taxable year shall not exceed 20 
     percent of so much of the taxable income of the taxpayer 
     (determined without regard to this section) which is 
     attributable (determined in the manner applicable under 
     section 1301) to any eligible farming business.
       ``(c) Eligible Farming Business.--For purposes of this 
     section, the term `eligible farming business' means any 
     farming business (as defined in section 263A(e)(4)) which is 
     not a passive activity (within the meaning of section 469(c)) 
     of the taxpayer.
       ``(d) FARRM Account.--For purposes of this section--
       ``(1) In general.--The term `FARRM Account' means a trust 
     created or organized in the United States for the exclusive 
     benefit of the taxpayer, but only if the written governing 
     instrument creating the trust meets the following 
     requirements:
       ``(A) No contribution will be accepted for any taxable year 
     in excess of the amount allowed as a deduction under 
     subsection (a) for such year.
       ``(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 consist entirely of cash or 
     of obligations which have adequate stated interest (as 
     defined in section 1274(c)(2)) and which pay such interest 
     not less often than annually.
       ``(D) All income of the trust is distributed currently to 
     the grantor.
       ``(E) The assets of the trust will not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       ``(2) Account taxed as grantor trust.--The grantor of a 
     FARRM Account shall be treated for purposes of this title as 
     the owner of such Account and shall be subject to tax thereon 
     in accordance with subpart E of part I of subchapter J of 
     this chapter (relating to grantors and others treated as 
     substantial owners).
       ``(e) Inclusion of Amounts Distributed.--
       ``(1) In general.--Except as provided in paragraph (2), 
     there shall be includible in the gross income of the taxpayer 
     for any taxable year--
       ``(A) any amount distributed from a FARRM Account of the 
     taxpayer during such taxable year, and
       ``(B) any deemed distribution under--
       ``(i) subsection (f)(1) (relating to deposits not 
     distributed within 5 years),
       ``(ii) subsection (f)(2) (relating to cessation in eligible 
     farming business), and
       ``(iii) subparagraph (A) or (B) of subsection (f)(3) 
     (relating to prohibited transactions and pledging account as 
     security).
       ``(2) Exceptions.--Paragraph (1)(A) shall not apply to--
       ``(A) any distribution to the extent attributable to income 
     of the Account, and
       ``(B) the distribution of any contribution paid during a 
     taxable year to a FARRM Account to the extent that such 
     contribution exceeds the limitation applicable under 
     subsection (b) if requirements similar to the requirements of 
     section 408(d)(4) are met.
     For purposes of subparagraph (A), distributions shall be 
     treated as first attributable to income and then to other 
     amounts.
       ``(3) Exclusion from self-employment tax.--Amounts included 
     in gross income under this subsection shall not be included 
     in determining net earnings from self-employment under 
     section 1402.
       ``(f) Special Rules.--
       ``(1) Tax on deposits in account which are not distributed 
     within 5 years.--
       ``(A) In general.--If, at the close of any taxable year, 
     there is a nonqualified balance in any FARRM Account--
       ``(i) there shall be deemed distributed from such Account 
     during such taxable year an amount equal to such balance, and
       ``(ii) the taxpayer's tax imposed by this chapter for such 
     taxable year shall be increased by 10 percent of such deemed 
     distribution.

     The preceding sentence shall not apply if an amount equal to 
     such nonqualified balance is distributed from such Account to 
     the taxpayer before the due date (including extensions) for 
     filing the return of tax imposed by this chapter for such 
     year (or, if earlier, the date the taxpayer files such return 
     for such year).
       ``(B) Nonqualified balance.--For purposes of subparagraph 
     (A), the term `nonqualified balance' means any balance in the 
     Account on the last day of the taxable year which is 
     attributable to amounts deposited in such Account before the 
     4th preceding taxable year.
       ``(C) Ordering rule.--For purposes of this paragraph, 
     distributions from a FARRM Account shall be treated as made 
     from deposits in the order in which such deposits were made, 
     beginning with the earliest deposits. For purposes of the 
     preceding sentence, income of such an Account shall be 
     treated as a deposit made on the date such income is received 
     by the Account.
       ``(2) Cessation in eligible farming business.--At the close 
     of the first disqualification period after a period for which 
     the taxpayer was engaged in an eligible farming business, 
     there shall be deemed distributed from the FARRM Account (if 
     any) of the taxpayer an amount equal to the balance in such 
     Account at the close of such disqualification period. For 
     purposes of the preceding sentence, the term 
     `disqualification period' means any period of 2 consecutive 
     taxable years for which the taxpayer is not engaged in an 
     eligible farming business.

[[Page S2847]]

       ``(3) Certain rules to apply.--Rules similar to the 
     following rules shall apply for purposes of this section:
       ``(A) Section 408(e)(2) (relating to loss of exemption of 
     account where individual engages in prohibited transaction).
       ``(B) Section 408(e)(4) (relating to effect of pledging 
     account as security).
       ``(C) Section 408(g) (relating to community property laws).
       ``(D) Section 408(h) (relating to custodial accounts).
       ``(4) Time when payments deemed made.--For purposes of this 
     section, a taxpayer shall be deemed to have made a payment to 
     a FARRM Account on the last day of a taxable year if such 
     payment is made on account of such taxable year and is made 
     within 3\1/2\ months after the close of such taxable year.
       ``(5) Individual.--For purposes of this section, the term 
     `individual' shall not include an estate or trust.
       ``(g) Reports.--The trustee of a FARRM Account shall make 
     such reports regarding such Account to the Secretary and to 
     the person for whose benefit the Account is maintained with 
     respect to contributions, distributions, and such other 
     matters as the Secretary may require under regulations. The 
     reports required by this subsection shall be filed at such 
     time and in such manner and furnished to such persons at such 
     time and in such manner as may be required by those 
     regulations.''.
       (b) Deduction Allowed in Computing Adjusted Gross Income.--
     Subsection (a) of section 62 of such Code (defining adjusted 
     gross income) is amended by inserting after paragraph (17) 
     the following new paragraph:
       ``(18) Contributions to farm and ranch risk management 
     accounts.--The deduction allowed by section 468C(a).''
       (c) Tax on Excess Contributions.--
       (1) Subsection (a) of section 4973 of such Code (relating 
     to tax on certain excess contributions) is amended by 
     striking ``or'' at the end of paragraph (3), by redesignating 
     paragraph (4) as paragraph (5), and by inserting after 
     paragraph (3) the following new paragraph:
       ``(4) a FARRM Account (within the meaning of section 
     468C(d)), or''.
       (2) Section 4973 of such Code is amended by adding at the 
     end the following new subsection:
       ``(g) Excess Contributions to FARRM Accounts.--For purposes 
     of this section, in the case of a FARRM Account (within the 
     meaning of section 468C(d)), the term `excess contributions' 
     means the amount by which the amount contributed for the 
     taxable year to the Account exceeds the amount which may be 
     contributed to the Account under section 468C(b) for such 
     taxable year. For purposes of this subsection, any 
     contribution which is distributed out of the FARRM Account in 
     a distribution to which section 468C(e)(2)(B) applies shall 
     be treated as an amount not contributed.''.
       (3) The section heading for section 4973 of such Code is 
     amended to read as follows:

     ``SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN ACCOUNTS, 
                   ANNUITIES, ETC.''.

       (4) The table of sections for chapter 43 of such Code is 
     amended by striking the item relating to section 4973 and 
     inserting the following new item:

``Sec. 4973. Excess contributions to certain accounts, annuities, 
              etc.''.

       (d) Tax on Prohibited Transactions.--
       (1) Subsection (c) of section 4975 of such Code (relating 
     to prohibited transactions) is amended by adding at the end 
     the following new paragraph:
       ``(6) Special rule for farrm accounts.--A person for whose 
     benefit a FARRM Account (within the meaning of section 
     468C(d)) 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 FARRM Account by reason of the application of 
     section 468C(f)(3)(A) to such Account.''.
       (2) Paragraph (1) of section 4975(e) of such Code is 
     amended by redesignating subparagraphs (E) and (F) as 
     subparagraphs (F) and (G), respectively, and by inserting 
     after subparagraph (D) the following new subparagraph:
       ``(E) a FARRM Account described in section 468C(d),''.
       (e) Failure To Provide Reports on FARRM Accounts.--
     Paragraph (2) of section 6693(a) of such Code (relating to 
     failure to provide reports on certain tax-favored accounts or 
     annuities) is amended by redesignating subparagraphs (C) and 
     (D) as subparagraphs (D) and (E), respectively, and by 
     inserting after subparagraph (B) the following new 
     subparagraph:
       ``(C) section 468C(g) (relating to FARRM Accounts).''.
       (f) Clerical Amendment.--The table of sections for subpart 
     C of part II of subchapter E of chapter 1 of such Code is 
     amended by inserting after the item relating to section 468B 
     the following new item:

``Sec. 468C. Farm and Ranch Risk Management Accounts.''.

       (g) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

 Mr. BAUCUS. Mr. President, I rise today to join my colleague 
Senator Grassley in introducing the Farm and Ranch Risk Management Act 
of 1999.
  The American farm is the cornerstone of our rich cultural heritage. 
Yet farming remains one of the most perilous ways to make a living. A 
family farmer's income depends on good weather and strong international 
markets. When either of these two factors turn negative, farmers have 
few tools at their disposal to cushion the blow.
  Farm families are now suffering record low prices on grain and 
livestock in the most severe farming crisis since the 1980's. Who could 
have imagined back in 1996 when Congress passed the Freedom to Farm Act 
that wheat prices would drop from $4.50 a bushel to $2.81 a bushel by 
September 1998? As wheat and other agricultural commodity prices dipped 
to record lows, America's producers have been stranded without a safety 
net, causing a severe financial crisis.
  I sincerely hope that 1999 will be the ``Year of Recovery'' for our 
battered farm economy. I believe we can make this happen by focusing on 
three goals:
  We must pry open foreign markets to agricultural products.
  We must help agricultural producers at home.
  We must install a permanent safety net to help producers weather 
times of crisis.
  In two other bills I have introduced, I have proposed changes to the 
crop insurance program in order to help re-build this safety net for 
farmers. Today's introduction of the Farm and Ranch Risk Management Act 
is another step in this re-building process. The FARRM Act is a pro-
active measure that would give farmers a five-year window to manage 
their money. It allows them to put aside up to 20% of their annual 
income for up to 5 years in a tax-deferred FARRM account. They only pay 
taxes on the amount set-aside when it is withdrawn from the account.
  The FARRM bill allows the farmer to help himself. It allows farmers 
to manage their incomes, to smooth out the highs and lows of the 
commodity markets. It is not a new subsidy, nor is it a new government 
program. It is simply a new tool farmers can use to cope with an 
uncertain world. It provides American farmers with a fighting chance to 
survive the down times with an opportunity to enjoy their success 
during the good times.
  I believe the FARRM Act is an essential strand in the safety net we 
must weave to protect our nation's farm families. I urge my colleagues 
to support the bill.
                                 ______