[Congressional Record Volume 146, Number 47 (Thursday, April 13, 2000)]
[Senate]
[Pages S2736-S2737]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CONRAD:
  S. 2422. A bill to amend the Internal Revenue Code of 1986 to provide 
tax incentives for farm relief and economic development, and for other 
purposes; to the Committee on Finance.


            Farm Relief and Economic Development Act of 2000

  Mr. CONRAD. Mr. President, I rise today to introduce the Farm Relief 
and Economic Development Act of 2000. We have farmers who are in the 
deepest trouble they have been in in 50 years: the lowest prices in 50 
years, a series of natural disasters in many parts of the country, and 
an economic environment in which our major competitors are outgunning 
us 60 to 1 in agricultural export support, by 10 to 1 in internal 
support. The result is tens of thousands of farm families are faced 
with failure unless we respond.
  The Department of Agriculture has told us that farm income will drop 
$8 billion if we fail to act. As part of an overall response, today I 
am introducing legislation that I term the ``Farm Relief and Economic 
Development Act of 2000.'' There is no question in my mind that the 
best action Congress could take on farm policy would be to rewrite the 
farm bill. But that is unlikely to happen this year.
  There are parts of the Internal Revenue Code that create unnecessary 
problems for farmers that we can address. The essential elements of 
this bill are provisions to address farm and ranch risk management 
accounts. This proposal would allow farmers to make contributions to 
tax-deferred accounts, which would be known as farm and ranch risk 
management accounts. Those accounts would provide farmers with a 
valuable new tool for managing money in a way that best benefits each 
farmer's own operations.
  The second key element of this legislation is clarifying the self-
employment tax that applies to farm lease income. A farm landlord 
should be treated no differently than small business operators and 
other commercial landlords when it comes to cash rent income.
  As a result of a 1996 Tax Court decision, the IRS has now expanded 
the reach of the self-employment tax to include all farm landlords, 
whether or not they are active participants in the farming activity. My 
proposal would restore the pre-1996 status quo, turning back this 
unilateral action by the IRS. My proposal also includes language to 
clarify the Conservation Reserve Program payments are not subject to 
the self-employment tax. Again, we have an interpretation by the 
Internal Revenue Service that we think is badly flawed and ought to be 
reversed.
  This legislation provides capital gains relief on the sale of farm 
residences and farmland. Farm families frequently cannot take full 
advantage of the $500,000 capital gains tax exemption that we provide 
nonfarm residents. That is because the IRS separates the value of a 
farmer's house from the contiguous land. The value of the home often 
turns out to be negligible because the IRS often judges homes located 
far out in the country to have very little value. In fact, it is often 
the case it has very little in the way of market value when it is 
detached from the land that surrounds that farmstead. My proposal would 
allow the exclusion of $500,000 that we currently allow homeowners to 
be applied to the sale of a farmer's home and up to 160 acres of 
surrounding farmland.
  The next element of my legislation is Aggie bonds. Finding ways to 
encourage people to start farming is not easy. Aggie bonds are helping 
by reducing the cost of credit and stimulating investment in 
agriculture. This proposal would exclude Aggie bonds from the State 
volume cap. It would not change the loan limit, nor would it affect any 
additional limitations or qualifications imposed by the 16 States which 
participate in the program.

  My proposal provides capital gains tax relief for farmers leaving 
farming. The farmer who decides to leave under enormous financial 
pressure today often finds the IRS waiting with its hand out. When 
property is sold at auction in order to satisfy debt, the farmers will 
often realize a very significant capital gain, even though they really 
have losses because the value of the property has gone up while the 
debt may have gone up even more dramatically. This proposal would 
provide a once-in-a-lifetime capital gains exclusion for farmers who 
decide or are pressured to leave agriculture.
  Next, this proposal addresses net operating losses of farmers. My 
proposal would lengthen the carryback period for net operating losses 
for farmers to 10 years. Because of the volatility in the income of 
farmers, we believe it makes sense to allow them a net operating loss 
over an extended period.
  Next, this proposal I am offering today deals with estate valuation. 
We

[[Page S2737]]

have the special use valuation, in order to help farmers keep their 
farms intact. The definitions that trigger the recapture, 
unfortunately, are too rigid. If the farm can remain a going concern by 
renting some portion of it to other family members, I believe the 
family should be able to still enjoy the benefits of special use 
valuation. My proposal would provide that an heir could rent the family 
farm to family members for the purpose of farming without triggering 
the recapture provisions.
  Next, my proposal deals with farmer cooperatives. This proposal would 
provide cooperatives with the same declaratory relief procedures 
available to other tax-exempt entities when their tax-exempt status is 
denied.
  Finally, my proposal deals with income averaging for farmers and the 
alternative minimum tax. Because of interaction between the income 
averaging provisions of the code and the alternative minimum tax, some 
farmers who elect to take advantage of income averaging are finding 
themselves subject to alternative minimum tax. That was never intended. 
This outcome should be changed so farmers receive the full benefit of 
income averaging. This proposal would provide that a farmer who elects 
income averaging would not then face an increase in AMT liability.
  With that, Mr. President, I send the bill to the desk and ask for its 
referral. I hope colleagues will support this legislation.
                                 ______