[Congressional Record Volume 146, Number 24 (Tuesday, March 7, 2000)]
[Senate]
[Pages S1236-S1238]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MURKOWSKI (for himself and Mr. Stevens):
  S. 2203. A bill to amend title 26 of the Taxpayer Relief Act of 1986 
to allow income averaging for fishermen without negative Alternative 
Minimum Tax treatment, for the creation of risk management accounts for 
fishermen and for other purposes; to the Committee on Finance.


              Fair Tax Treatment for Fisherman Act of 2000

 Mr. MURKOWSKI. Mr. President, today I am introducing 
legislation that will ease the financial hardships that fisherman 
endure because of the uncertainties of their industry. I am very 
pleased that Senator Stevens has joined me in co-sponsoring this 
legislation.
  Mr. President, in 1986 when Congress rewrote the tax law and cut the 
number of tax brackets from 11 to two, one of the provisions of prior 
law that was repealed was income averaging. The purpose of income 
averaging was to ameliorate the tax burden on individuals whose incomes 
varied from year to year. It ensured that an individual whose income 
increased significantly in one year and then dropped significantly in 
the next year could average the tax brackets for the two years. With 
only two brackets, many believed that income averaging was no longer 
needed.
  However, in the 14 years since the 1986 tax reform, we have added 
three additional brackets to the tax code. And with five brackets there 
is a clear need for income averaging, especially for individuals who 
are in occupations where the predictability of income is uncertain. In 
1997, we adopted income averaging for farmers because we recognized 
that weather conditions can significantly impact what a farming family 
earns in any particular year.
  In this legislation we are introducing today, we are adding fishermen 
to the category eligible for income averaging. Just as farmers cannot 
predict the weather, fisherman are unable to predict how large or small 
their catch will be.
  Let me give you an example of how the fishermen in Bristol Bay in my 
home state of Alaska have fared in recent years. Between 1995 and 1998, 
the fish run dropped from 244 million to barely 58 million last year. 
At the same time their income has dropped from $188 million to $69 
million.

[[Page S1237]]

  Quite frankly, income averaging is fair for farmers and is equally 
justified for fishermen.
  In addition, our legislation establishes risk management savings 
accounts which fishermen will be able to draw down when fishing runs 
are low. Under this proposal, fishermen could set aside up to 20 
percent of their income in special savings accounts. Interest earned in 
the account would be taxable, but withdrawals would only be taxable in 
the year of the withdrawal.
  Mr. President, a recent fishery failure in Alaska resulted in the 
federal government allocate $50 million to assist the fishermen and 
their local communities. With these special risk management accounts, 
fishermen will be less dependent on federal assistance and will be able 
to more easily survive fishing downturns.
  Mr. President, it is my hope that when we consider a tax bill later 
this year, these modest proposals will be included in that bill.
  I ask unanimous consent that the full text of the bill be printed in 
the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2203

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; ETC.

       (a) Short Title.--This Act may be referred to as the ``Fair 
     Tax Treatment for Fishermen Act of 2000''.

     SEC. 2. INCOME AVERAGING FOR FISHERMEN WITHOUT INCREASING 
                   ALTERNATIVE MINIMUM TAX LIABILITY.

       (a) In General.--Section 55(c) (defining regular tax) is 
     amended by redesignating paragraph (2) as paragraph (3) and 
     by inserting after paragraph (1) the following:
       ``(2) Coordination with income averaging for fishermen.--
     Solely for purposes of this section, section 1301 (relating 
     to averaging of fishing income) shall not apply in computing 
     the regular tax.''.
       (b) Allowing Income Averaging for Fishermen.--
       (1) In general.--Section 1301(a) is amended by striking 
     ``farming business'' and inserting ``farming business or 
     fishing business,''.
       (2) Definition of elected farm income.--
       (A) In general.--Clause (i) of section 1301(b)(1)(A) is 
     amended by inserting ``or fishing business'' before the 
     semicolon.
       (B) Conforming amendment.--Subparagraph (B) of section 
     1301(b)(1) is amended by inserting ``or fishing business'' 
     after ``farming business'' both places it occurs.
       (3) Definition of fishing business.--Section 1301(b) is 
     amended by adding at the end the following new paragraph:
       ``(4) Fishing business.--The term `fishing business' means 
     the conduct of commercial fishing (as defined in section 3 of 
     the Magnuson-Stevens Fishery Conservation and Management Act 
     (16 U.S.C. 1802, P.L. 94-265 as amended).)''.

     SEC. 3. FISHING RISK MANAGEMENT ACCOUNTS.

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

     ``SEC. 468C. FISHING RISK MANAGEMENT ACCOUNTS.

       ``(a) Deduction Allowed.--In the case of an individual 
     engaged in an eligible commercial fishing activity, there 
     shall be allowed as a deduction for any taxable year the 
     amount paid in cash by the taxpayer during the taxable year 
     Fishing Risk Management Account (hereinafter referred to as 
     the `FisheRMen Account').
       ``(b) Limitation.--
       ``(1) Contributions.--The amount which a taxpayer may pay 
     into the FisheRMen 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 commercial fishing activity.
       ``(2) Distribution.--Distributions from a FisheRMen Account 
     may not be used to purchase, lease, or finance any new 
     fishing vessel, add capacity to any fishery, or otherwise 
     contribute to the overcapitalization of any fishery. The 
     Secretary of Commerce shall implement regulations to enforce 
     this paragraph.
       ``(c) Eligible Businesses.--For purposes of this section--
       ``(1) Commercial fishing activity.--The term `commercial 
     fishing activity' has the meaning given the term `commercial 
     fishing' by section (3) of the Magnuson-Stevens Fishery 
     Conservation and Management Act (16 U.S.C. 1802, P.L. 94-265 
     as amended) but only if such fishing is not a passive 
     activity (within the meaning of section 469(c)) of the 
     taxpayer.
       ``(d) Fishermen Account.--For purposes of this section--
       ``(1) In general.--The term `FisheRMen 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 
     FisheRMen 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 includable in the gross income of the taxpayer 
     for any taxable year--
       ``(A) any amount distributed from a FisheRMen 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 
     commercial fishing activities), 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 FisheRMen 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.
       ``(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 FisheRMen 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 FisheRMen Account (other than 
     distributions of current income) shall be treated as made 
     from deposits in the order in which such deposits were made, 
     beginning with the earliest deposits.
       ``(2) Cessation in eligible business.--At the close of the 
     first disqualification period after a period for which the 
     taxpayer was engaged in an eligible commercial fishing 
     activity, there shall be deemed distributed from the 
     FisheRMen Account of the taxpayer an amount equal to the 
     balance in such Account (if any) 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 commercial fishing activity.
       ``(3) Certain rules to apply.--Rules similar to the 
     following rules shall apply for purposes of this section:
       ``(A) Section 220(f)(8) (relating to treatment on death).
       ``(B) Section 408(e)(2) (relating to loss of exemption of 
     account where individual engages in prohibited transaction).
       ``(C) Section 408(e)(4) (relating to effect of pledging 
     account as security).
       ``(D) Section 408(g) (relating to community property laws).
       ``(E) 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 FisheRMen Account on the last day of a taxable year if such 
     payment is made on account of such taxable year and is made 
     on or before the due date (without regard to extensions) for 
     filing the return of tax for such taxable year.
       ``(5) Individual.--For purpose of this section, the term 
     `individual' shall not include an estate or trust.

[[Page S1238]]

       ``(6) Deduction not allowed for self-employment tax.--The 
     deduction allowable by reason of subsection (a) shall not be 
     taken into account in determining an individual's net 
     earnings from self-employment (within the meaning of section 
     1402(a)) for purposes of chapter 2.
       ``(g) Reports.--The trustee of a FisheRMen 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 such 
     regulations.'.
       (b) Tax on Excess Contributions.--
       (1) Subsection (a) of section 4973 (relating to tax on 
     excess contributions to certain tax-favored accounts and 
     annuities) 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:
       ``(4) a FisheRMen Account (within the meaning of section 
     468C(d)), or''.
       (2) Section 4973 is amended by adding at the end the 
     following:
       ``(g) Excess Contributions to Fishermen Accounts.--For 
     purposes of this section, in the case of a FisheRMen 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 
     FisheRMen Account in a distribution to which section 
     468C(e)(2)(B) applies shall be treated as an amount not 
     contributed.''.
       (e) The section heading for section 4973 is amended to read 
     as follows:

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

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

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

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

``Sec. 468C. Fishing Risk Management Accounts.''.

     SECTION 4. EFFECTIVE DATE.

       (a) The changes made by this Act shall apply to taxable 
     years beginning after December 31, 2000.
 Mr. STEVENS. Mr. President, I am pleased to join my colleague 
from Alaska in introducing this important piece of legislation. As a 
member of the Senate Finance Committee he is all too aware of the need 
for equity in our tax system and simplicity in our Tax Code.
  The first portion of the bill we introduce today would allow 
fishermen to average income and would not penalize that election with 
the alternative minimum tax. Up until 1986, individuals, including 
farmers and fishermen, could elect to average income under section 
1301. That choice was no longer available after Congress repealed 
section 1301 in 1986. Later, in 1997, Congress inserted a new version 
of section 1301 with a modified form of income averaging for farmers. 
Section 1301 currently allows farmers engaged in an eligible farming 
business to average income for tax purposes. This allows farmers to 
take the fluctuations of their markets, prices and crop conditions into 
account when calculating income taxes. Fishermen should be afforded the 
same opportunities as farmers--they are the farmers of the sea and 
should be treated as such under the Tax Code.
  A provision similar to this was included in the Taxpayer Refund Act 
of 1999 that was vetoed by the President last year. It is not a 
controversial measure, and its impact on the Treasury is minimal. The 
Joint Committee on Tax estimated last summer that this provision would 
cost approximately $5 million over the next ten years. This is a small 
price to pay to create equity and fairness in our Tax Code and to 
ensure fishermen receive the same benefits as farmers. While this is 
one step toward equal treatment for our fishermen, it is an important 
part of ensuring the long-term sustainability of our fishing industry.
  The second portion of the bill we introduce today would allow 
fishermen to establish tax deferred risk management savings accounts to 
help them through downturns in the market. The Taxpayer Refund Act of 
1999 included similar language. These new risk management accounts 
would be used to let fishermen set aside up to 20 percent of their 
income on a tax deferred basis. The money could be held for up to five 
years, then it would have to be withdrawn from the individual's 
account. Once the money is withdrawn from the account, the fishermen 
would pay tax on the amount that was originally deferred. Any interest 
earned on the money in the account would be taxed in the year that it 
was earned.
  This approach to encouraging fishermen to set some money aside for 
downturns in the market makes sense. The Joint Committee on Taxation 
estimated last year that allowing fishermen to set aside 20 percent of 
their income into these tax deferred accounts would cost only $18 
million over 10 years. This is a small price to pay to encourage 
fishermen to be pro-active in planning for downturns rather than having 
to be reactive when markets collapse or fishing stocks are weak.
  In previous years we have had to bail out fishing areas that have 
been hit hard by fishery failures. A recent fishery failure in Alaska, 
and the impact of that failure on families and communities, is still 
being felt today. We were forced to allocate $50 million to bail out 
those fishermen and the local communities. This provision, at a cost of 
$18 million over ten years, is a far-sighted way to let fishermen play 
a part in a disaster recovery and preserve the proud self-reliance that 
marks their industry.
  I thank my colleague from Alaska, Senator Murkowski, for his support 
of this bill and I encourage all Senators to support these 
provisions.
                                 ______