[Congressional Record Volume 147, Number 20 (Tuesday, February 13, 2001)]
[Senate]
[Pages S1331-S1336]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY:
  S. 314. A bill to amend the Internal Revenue Code of 1986 to provide 
declaratory judgement relief for section 521 cooperatives; to the 
Committee on Finance.
  Mr. GRASSLEY. Mr. President, I would like to discuss legislation I'm 
offering today on behalf of myself and Senators Baucus, Brownback, 
Burns, Lugar, Roberts, Craig, Enzi, and Nelson from Nebraska this 
afternoon. It will assist millions of farmers across the nation. I've 
named the bill the Tax Empowerment and Relief for Farmers and Fishermen 
Act, or what I will refer to as TERFF.
  I'm a farmer, like my father was before me. I understand farming and 
how policy decisions from Washington impact hardworking farmers, like 
my son Robin. Before I ran for elected office and after I leave, God 
willing, I'll still be farming. There is little that I feel more 
strongly about than providing the agriculture community potential to 
survive and thrive. As far as I'm concerned, agriculture is my ``terf'' 
and as long as I'm in this town, I'll do all I can to serve my friends 
and neighbors in the agriculture community.
  This legislation has already been adopted by the Senate multiple 
times. In the midst of a serious downturn in the agriculture economy, 
it seems to me we ought to be doing everything we can to help farmers, 
and this would provide significant assistance.
  For example, my agriculture tax package will include:
  The Farm, Fish, and Ranch Risk Management Accounts--these farmer 
saving accounts would allow farmers to contribute up to 20 percent of 
their income in an account, and deduct it in the same year. Farm 
accounts would be a very important risk management tool that will help 
farmers put away money when there's actual income, so that, in the bad 
times, there will be a safety net. This measure has strong bipartisan 
support and was actually sent to President Clinton, who vetoed it.
  Farmers who participate in the Conservation Reserve Program CRP, are 
unnecessarily struggling during tax season because of a recent case 
pushed by the IRS. The latest 6th Circuit court's ruling treats CRP 
payments as farm income subject to the additional self employment tax 
rate of 15 percent.
  Senator Brownback has taken the lead on fixing this problem. This 
unfair tax not only ignores the intent of Congress in creating the CRP, 
it discourages farmers from using environmentally pro-active measures. 
At a time when farmers are struggling to regain their footing 
economically and do the right thing environmentally--it's important 
that Congress support them by upholding it promise on CRP.
  Senator Lugar has led the effort to expand the current program where 
companies can donate to food banks, so that farmers and restaurants can 
also donate surplus food directly to needy food banks. This will be a 
win for the farmers and a big win for people who depend on food bank 
assistance.
  This was also part of the vetoed tax bill. When we passed income 
averaging for farmers a few years ago, we neglected to take into 
account the problem of running into the alternative minimum tax, which 
many farmers are facing now. My bill will fix this growing problem.
  My bill expands opportunities for beginning farmers who are in need 
of low interest rate loans for capital purchases of farmland and 
equipment.
  Current law permits state authorities to issue tax exempt bonds and 
to lend the proceeds from the sale of the bonds to beginning farmers 
and ranchers to finance the cost of acquiring land, buildings and 
equipment used in a farm or ranch operation.
  Unfortunately, aggie bonds are subjected to a volume cap and must 
compete with big industrial projects for bond allocation. Aggie bonds 
share few similarities to industrial revenue bonds and should not be 
subjected to the volume cap established for industrial revenue bonds.
  Insufficient allocation of funding due to the volume cap limits the 
effectiveness of this program. We can't stand by and allow the next 
generation of farmers to lose an opportunity to participate in farming 
because of competition with industry for reduced interest loan rates.
  Recently the IRS determined that some cooperatives should be exposed 
to a regular corporate tax due to the fact that they are using organic 
value-added practices rather than manufactured value-added practices. 
This is unfair, and needs to be fixed.
  And of course my package wouldn't be complete without a provision 
leveling the playing field for ethanol producers.
  The Small Ethanol Producer Credit will allow small cooperative 
producers of ethanol to be able to receive the same tax benefits as 
large companies. This provision provides cooperatives the ability to 
elect to pass through small ethanol producer credits to its patrons.
  The ``TERFF'' package will do more to reform taxes for the American 
farmer than any other measure in recent memory. I'll be urging my 
colleagues to strongly support this measure. It's a bill that should 
have the unanimous support it enjoyed last congress on the Senate 
floor. As sure as I'm chairman of the Finance Committee, I will push to 
have this package passed into law during the 107th Congress. Mr. 
President, I ask unanimous consent that the text of these three bills 
be printed in the Record.
  There being no objection, the bills were ordered to be printed in the 
Record, as follows:

                                 S. 312

       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 cited as the ``Tax 
     Empowerment and Relief for Farmers and Fishermen (TERFF) 
     Act''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--

Sec. 1. Short title; etc.

[[Page S1332]]

Sec. 2. Farm, fishing, and ranch risk management accounts.
Sec. 3. Written agreement relating to exclusion of certain farm rental 
              income from net earnings from self-employment.
Sec. 4. Treatment of conservation reserve program payments as rentals 
              from real estate.
Sec. 5. Exemption of agricultural bonds from State volume cap.
Sec. 6. Modifications to section 512(b)(13).
Sec. 7. Charitable deduction for contributions of food inventory.
Sec. 8. Income averaging for farmers and fishermen not to increase 
              alternative minimum tax liability.
Sec. 9. Cooperative marketing includes value-added processing through 
              animals.
Sec. 10. Declaratory judgment relief for section 521 cooperatives.
Sec. 11. Small ethanol producer credit.
Sec. 12. Payment of dividends on stock of cooperatives without reducing 
              patronage dividends.

     SEC. 2. FARM, FISHING, AND RANCH 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 new section:

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

       ``(a) Deduction Allowed.--In the case of an individual 
     engaged in an eligible farming business or commercial 
     fishing, 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, Fishing, and Ranch Risk 
     Management Account (hereinafter referred to as the `FFARRM 
     Account').
       ``(b) Limitation.--
       ``(1) Contributions.--The amount which a taxpayer may pay 
     into the FFARRM 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 or commercial 
     fishing.
       ``(2) Distributions.--Distributions from a FFARRM 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) Eligible farming business.--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.
       ``(2) Commercial Fishing.--The term `commercial fishing' 
     has the meaning given such term by section (3) of the 
     Magnuson-Stevens Fishery Conservation and Management Act (16 
     U.S.C. 1802) but only if such fishing is not a passive 
     activity (within the meaning of section 469(c)) of the 
     taxpayer.
       ``(d) FFARRM Account.--For purposes of this section--
       ``(1) In general.--The term `FFARRM 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 
     FFARRM 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 FFARRM 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 (B) or (C) 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 FFARRM 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 FFARRM 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 FFARRM 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 farming business or 
     commercial fishing, there shall be deemed distributed from 
     the FFARRM 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 farming business or commercial 
     fishing.
       ``(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 FFARRM 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 purposes of this section, the term 
     `individual' shall not include an estate or trust.
       ``(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 FFARRM 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 new 
     paragraph:
       ``(4) a FFARRM Account (within the meaning of section 
     468C(d)), or''.
       (2) Section 4973 is amended by adding at the end the 
     following new subsection:
       ``(g) Excess Contributions to FFARRM Accounts.--For 
     purposes of this section, in the case of a FFARRM 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 
     FFARRM 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 is amended to read 
     as follows:

[[Page S1333]]

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

       (4) The table of sections for chapter 43 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.''.

       (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 new paragraph:
       ``(6) Special rule for ffarrm accounts.--A person for whose 
     benefit a FFARRM 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 FFARRM 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 new subparagraph:
       ``(E) a FFARRM Account described in section 468C(d),''.
       (d) Failure To Provide Reports on FFARRM Accounts.--
     Paragraph (2) of section 6693(a) (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 FFARRM 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 new item:

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

       (f ) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 3. WRITTEN AGREEMENT RELATING TO EXCLUSION OF CERTAIN 
                   FARM RENTAL INCOME FROM NET EARNINGS FROM SELF-
                   EMPLOYMENT.

       (a) Internal Revenue Code.--Section 1402(a)(1)(A) (relating 
     to net earnings from self-employment) is amended by striking 
     ``an arrangement'' and inserting ``a lease agreement''.
       (b) Social Security Act.--Section 211(a)(1)(A) of the 
     Social Security Act is amended by striking ``an arrangement'' 
     and inserting ``a lease agreement''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 4. TREATMENT OF CONSERVATION RESERVE PROGRAM PAYMENTS AS 
                   RENTALS FROM REAL ESTATE.

       (a) In General.--Section 1402(a)(1) (defining net earnings 
     from self-employment) is amended by inserting ``and including 
     payments under section 1233(2) of the Food Security Act of 
     1985 (16 U.S.C. 3833(2))'' after ``crop shares''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to payments made after December 31, 2001.

     SEC. 5. EXEMPTION OF AGRICULTURAL BONDS FROM STATE VOLUME 
                   CAP.

       (a) In General.--Section 146(g) (relating to exception for 
     certain bonds) is amended by striking ``and'' at the end of 
     paragraph (3), by striking the period at the end of paragraph 
     (4) and inserting ``, and'', and by inserting after paragraph 
     (4) the following new paragraph:
       ``(5) any qualified small issue bond described in section 
     144(a)(12)(B)(ii).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after December 31, 2001.

     SEC. 6. MODIFICATIONS TO SECTION 512(B)(13).

       (a) In General.--Paragraph (13) of section 512(b) is 
     amended by redesignating subparagraph (E) as subparagraph (F) 
     and by inserting after subparagraph (D) the following new 
     paragraph:
       ``(E) Paragraph to apply only to excess payments.--
       ``(i) In general.--Subparagraph (A) shall apply only to the 
     portion of a specified payment received by the controlling 
     organization that exceeds the amount which would have been 
     paid if such payment met the requirements prescribed under 
     section 482.
       ``(ii) Addition to tax for valuation misstatements.--The 
     tax imposed by this chapter on the controlling organization 
     shall be increased by an amount equal to 20 percent of such 
     excess.''.
       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     apply to payments received or accrued after December 31, 
     2000.
       (2) Payments subject to binding contract transition rule.--
     If the amendments made by section 1041 of the Taxpayer Relief 
     Act of 1997 did not apply to any amount received or accrued 
     in the first 2 taxable years beginning on or after the date 
     of the enactment of this Act under any contract described in 
     subsection (b)(2) of such section, such amendments also shall 
     not apply to amounts received or accrued under such contract 
     before January 1, 2001.

     SEC. 7. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF FOOD 
                   INVENTORY.

       (a) In General.--Subsection (e) of section 170 (relating to 
     certain contributions of ordinary income and capital gain 
     property) is amended by adding at the end the following new 
     paragraph:
       ``(7) Special rule for contributions of food inventory.--
     For purposes of this section--
       ``(A) Contributions by non-corporate taxpayers.--In the 
     case of a charitable contribution of food by a taxpayer, 
     paragraph (3)(A) shall be applied without regard to whether 
     or not the contribution is made by a corporation.
       ``(B) Limit on reduction.--In the case of a charitable 
     contribution of food which is a qualified contribution 
     (within the meaning of paragraph (3)(A), as modified by 
     subparagraph (A) of this paragraph)--
       ``(i) paragraph (3)(B) shall not apply, and
       ``(ii) the reduction under paragraph (1)(A) for such 
     contribution shall be no greater than the amount (if any) by 
     which the amount of such contribution exceeds twice the basis 
     of such food.
       ``(C) Determination of basis.--For purposes of this 
     paragraph, if a taxpayer uses the cash method of accounting, 
     the basis of any qualified contribution of such taxpayer 
     shall be deemed to be 50 percent of the fair market value of 
     such contribution.
       ``(D) Determination of fair market value.--In the case of a 
     charitable contribution of food which is a qualified 
     contribution (within the meaning of paragraph (3), as 
     modified by subparagraphs (A) and (B) of this paragraph) and 
     which, solely by reason of internal standards of the 
     taxpayer, lack of market, or similar circumstances, or which 
     is produced by the taxpayer exclusively for the purposes of 
     transferring the food to an organization described in 
     paragraph (3)(A), cannot or will not be sold, the fair market 
     value of such contribution shall be determined--
       ``(i) without regard to such internal standards, such lack 
     of market, such circumstances, or such exclusive purpose, and
       ``(ii) if applicable, by taking into account the price at 
     which the same or similar food items are sold by the taxpayer 
     at the time of the contribution (or, if not so sold at such 
     time, in the recent past).
       ``(E) Termination.--This paragraph shall not apply to any 
     contribution made during any taxable year beginning after 
     December 31, 2004.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 8. INCOME AVERAGING FOR FARMERS AND FISHERMEN NOT TO 
                   INCREASE 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 new paragraph:
       ``(2) Coordination with income averaging for farmers and 
     fishermen.--Solely for purposes of this section, section 1301 
     (relating to averaging of farm and 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).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 9. COOPERATIVE MARKETING INCLUDES VALUE-ADDED PROCESSING 
                   THROUGH ANIMALS.

       (a) In General.--Section 1388 (relating to definitions and 
     special rules) is amended by adding at the end the following 
     new subsection:
       ``(k) Cooperative Marketing Includes Value-Added Processing 
     Through Animals.--For purposes of section 521 and this 
     subchapter, the term `marketing the products of members or 
     other producers' includes feeding the products of members or 
     other producers to cattle, hogs, fish, chickens, or other 
     animals and selling the resulting animals or animal 
     products.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 10. DECLARATORY JUDGMENT RELIEF FOR SECTION 521 
                   COOPERATIVES.

       (a) In General.--Section 7428(a)(1) (relating to 
     declaratory judgments of tax exempt organizations) is amended 
     by striking ``or'' at the end of subparagraph (B) and by 
     adding at the end the following new subparagraph:
       ``(D) with respect to the initial qualification or 
     continuing qualification of a cooperative as described in 
     section 521(b) which is exempt from tax under section 521(a), 
     or''.
       (b) Effective Date.--The amendments made by this section 
     shall apply with respect

[[Page S1334]]

     to pleadings filed after the date of the enactment of this 
     Act but only with respect to determinations (or requests for 
     determinations) made after January 1, 2001.

     SEC. 11. SMALL ETHANOL PRODUCER CREDIT.

       (a) Allocation of Alcohol Fuels Credit to Patrons of a 
     Cooperative.--Section 40(g) (relating to alcohol used as 
     fuel) is amended by adding at the end the following new 
     paragraph:
       ``(6) Allocation of small ethanol producer credit to 
     patrons of cooperative.--
       ``(A) Election to allocate.--
       ``(i) In general.--In the case of a cooperative 
     organization described in section 1381(a), any portion of the 
     credit determined under subsection (a)(3) for the taxable 
     year may, at the election of the organization, be apportioned 
     pro rata among patrons of the organization on the basis of 
     the quantity or value of business done with or for such 
     patrons for the taxable year.
       ``(ii) Form and effect of election.--An election under 
     clause (i) for any taxable year shall be made on a timely 
     filed return for such year. Such election, once made, shall 
     be irrevocable for such taxable year.
       ``(B) Treatment of organizations and patrons.--The amount 
     of the credit apportioned to patrons under subparagraph (A)--
       ``(i) shall not be included in the amount determined under 
     subsection (a) with respect to the organization for the 
     taxable year,
       ``(ii) shall be included in the amount determined under 
     subsection (a) for the taxable year of each patron for which 
     the patronage dividends for the taxable year described in 
     subparagraph (A) are included in gross income, and
       ``(iii) shall be included in gross income of such patrons 
     for the taxable year in the manner and to the extent provided 
     in section 87.
       ``(C) Special rules for decrease in credits for taxable 
     year.--If the amount of the credit of a cooperative 
     organization determined under subsection (a)(3) for a taxable 
     year is less than the amount of such credit shown on the 
     return of the cooperative organization for such year, an 
     amount equal to the excess of--
       ``(i) such reduction, over
       ``(ii) the amount not apportioned to such patrons under 
     subparagraph (A) for the taxable year,

     shall be treated as an increase in tax imposed by this 
     chapter on the organization. Such increase shall not be 
     treated as tax imposed by this chapter for purposes of 
     determining the amount of any credit under this subpart or 
     subpart A, B, E, or G.''.
       (b) Improvements to Small Ethanol Producer Credit.--
       (1) Definition of small ethanol producer.--Section 40(g) 
     (relating to definitions and special rules for eligible small 
     ethanol producer credit) is amended by striking 
     ``30,000,000'' each place it appears and inserting 
     ``60,000,000''.
       (2) Small ethanol producer credit not a passive activity 
     credit.--Clause (i) of section 469(d)(2)(A) is amended by 
     striking ``subpart D'' and inserting ``subpart D, other than 
     section 40(a)(3),''.
       (3) Allowing credit against minimum tax.--
       (A) In general.--Subsection (c) of section 38 (relating to 
     limitation based on amount of tax) is amended by 
     redesignating paragraph (3) as paragraph (4) and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) Special rules for small ethanol producer credit.--
       ``(A) In general.--In the case of the small ethanol 
     producer credit--
       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

       ``(I) subparagraphs (A) and (B) thereof shall not apply, 
     and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the small 
     ethanol producer credit).

       ``(B) Small ethanol producer credit.--For purposes of this 
     subsection, the term `small ethanol producer credit' means 
     the credit allowable under subsection (a) by reason of 
     section 40(a)(3).''.
       (B) Conforming amendment.--Subclause (II) of section 
     38(c)(2)(A)(ii) is amended by striking ``(other'' and all 
     that follows through ``credit)'' and inserting ``(other than 
     the empowerment zone employment credit or the small ethanol 
     producer credit)''.
       (4) Small ethanol producer credit not added back to income 
     under section 87.--Section 87 (relating to income inclusion 
     of alcohol fuel credit) is amended to read as follows:

     ``SEC. 87. ALCOHOL FUEL CREDIT.

       ``Gross income includes an amount equal to the sum of--
       ``(1) the amount of the alcohol mixture credit determined 
     with respect to the taxpayer for the taxable year under 
     section 40(a)(1), and
       ``(2) the alcohol credit determined with respect to the 
     taxpayer for the taxable year under section 40(a)(2).''.
       (c) Conforming Amendment.--Section 1388 (relating to 
     definitions and special rules for cooperative organizations), 
     as amended by section 9, is amended by adding at the end the 
     following new subsection:
       ``(l) Cross Reference.--For provisions relating to the 
     apportionment of the alcohol fuels credit between cooperative 
     organizations and their patrons, see section 40(g)(6).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 12. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES 
                   WITHOUT REDUCING PATRONAGE DIVIDENDS.

       (a) In General.--Subsection (a) of section 1388 (relating 
     to patronage dividend defined) is amended by adding at the 
     end the following new sentence: ``For purposes of paragraph 
     (3), net earnings shall not be reduced by amounts paid during 
     the year as dividends on capital stock or other proprietary 
     capital interests of the organization to the extent that the 
     articles of incorporation or bylaws of such organization or 
     other contract with patrons provide that such dividends are 
     in addition to amounts otherwise payable to patrons which are 
     derived from business done with or for patrons during the 
     taxable year.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions in taxable years beginning after 
     the date of the enactment of this Act.
                                  ____


                                 S. 313

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

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

       (a) Short Title.--This Act may be cited as the ``Farm, 
     Fishing, and Ranch Risk Management Act''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.

     SEC. 2. FARM, FISHING, AND RANCH 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 new section:

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

       ``(a) Deduction Allowed.--In the case of an individual 
     engaged in an eligible farming business or commercial 
     fishing, 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, Fishing, and Ranch Risk 
     Management Account (hereinafter referred to as the `FFARRM 
     Account').
       ``(b) Limitation.--
       ``(1) Contributions.--The amount which a taxpayer may pay 
     into the FFARRM 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 or commercial 
     fishing.
       ``(2) Distributions.--Distributions from a FFARRM 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) Eligible farming business.--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.
       ``(2) Commercial fishing.--The term `commercial fishing' 
     has the meaning given such term by section (3) of the 
     Magnuson-Stevens Fishery Conservation and Management Act (16 
     U.S.C. 1802) but only if such fishing is not a passive 
     activity (within the meaning of section 469(c)) of the 
     taxpayer.
       ``(d) FFARRM Account.--For purposes of this section--
       ``(1) In general.--The term `FFARRM 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 
     FFARRM 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.--

[[Page S1335]]

       ``(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 FFARRM 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 (B) or (C) 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 FFARRM 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 FFARRM 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 FFARRM 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 farming business or 
     commercial fishing, there shall be deemed distributed from 
     the FFARRM 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 farming business or commercial 
     fishing.
       ``(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 FFARRM 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 purposes of this section, the term 
     `individual' shall not include an estate or trust.
       ``(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 FFARRM 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 new 
     paragraph:
       ``(4) a FFARRM Account (within the meaning of section 
     468C(d)), or''.
       (2) Section 4973 is amended by adding at the end the 
     following new subsection:
       ``(g) Excess Contributions to FFARRM Accounts.--For 
     purposes of this section, in the case of a FFARRM 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 
     FFARRM 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 is amended to read 
     as follows:

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

       (4) The table of sections for chapter 43 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.''

       (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 new paragraph:
       ``(6) Special rule for ffarrm accounts.--A person for whose 
     benefit a FFARRM 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 FFARRM 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 new subparagraph:
       ``(E) a FFARRM Account described in section 468C(d),''.
       (d) Failure To Provide Reports on FFARRM Accounts.--
     Paragraph (2) of section 6693(a) (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 FFARRM 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 new item:

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

       (f ) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.
                                  ____


                                 S. 314

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

     SECTION 1. DECLARATORY JUDGMENT RELIEF FOR SECTION 521 
                   COOPERATIVES.

       (a) In General.--Section 7428(a)(1) of the Internal Revenue 
     Code of 1986 (relating to declaratory judgments of tax exempt 
     organizations) is amended by striking ``or'' at the end of 
     subparagraph (B) and by adding at the end the following new 
     subparagraph:
       ``(D) with respect to the initial qualification or 
     continuing qualification of a cooperative as described in 
     section 521(b) which is exempt from tax under section 521(a), 
     or''.
       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to pleadings filed after the date of 
     the enactment of this Act but only with respect to 
     determinations (or requests for determinations) made after 
     January 1, 2001.

  Mr. BURNS. Mr. President, I rise today to join Senator Grassley and 
others to introduce the TERFF Act, Tax Empowerment and Relief for 
Farmers and Fisherman.
  This bill includes several provisions providing tax relief that will 
help our nation's farmers.
  First, this bill will create FFARRM, Farm, Fish and Ranch Risk 
Management, Accounts that will provide farmers, ranchers and fishermen 
with additional money management tools. Agricultural producers will be 
allowed to contribute up to 20 percent of their annual income into 
these accounts. The tax on this income will be deferred for up to five 
years or until the depositor withdraws the money.
  The bill will amend the tax code to ensure that farm cash rents are 
not subject to an additional 15 percent self-employment tax. 
Additionally, the bill will ensure CRP, Conservation Reserve Program, 
payments are not subject to the same self-employment tax. I have also 
co-sponsored a similar CRP bill with Senator Brownback from Kansas.
  The bill will also enable States to expand opportunities for 
beginning farmers who are in need of low interest

[[Page S1336]]

loans for capital purchases of farmland and equipment.
  The bill provides that interest, rent and royalty payment made by a 
subsidiary to a non-profit are not subject to a unrelated business 
income taxes. The bill provides a tax deduction to farmers and ranchers 
who donate food to hunger relief organizations.
  The bill will correct a problem experienced by farmers who use income 
averaging by ensuring that farmers are not disqualified from using 
income averaging due to the alternative minimum tax, AMT, calculation.
  The bill would reapply taxes on cooperatives using animal value-added 
practices in the same way as cooperatives using manufactured value-
added practices. Furthermore, it would allow cooperative producers of 
ethanol to receive the same tax benefits as large corporations. The 
bill will also allow farmer cooperatives to use preferred stock to 
raise equity capital.
  This bill will help our nation's farmers and ranchers. The 
agriculture sector of our nation's economy needs the relief.
  Mr. ENZI. Mr. President, I rise to introduce legislation to address a 
concern of farmers in my State of Wyoming and throughout the United 
States. This legislation, which I am introducing with the distinguished 
chairman of the Finance Committee, Senator Grassley, as well as the 
senior Senator from North Dakota, Mr. Conrad, is designed to clarify a 
provision in the Internal Revenue Code and its accompanying regulations 
which has been broadly interpreted to impose self-employment (SE) taxes 
on rental income from real estate even though such income was generally 
designed to be exempt from SE taxes.
  Under Section 1402(a)(1) of the Internal Revenue Code, rental income 
from real estate was only intended to be subject to the SE taxes when, 
one, the income is from an arrangement between an owner and lessee 
that, two, requires the lessee to produce agricultural or horticultural 
commodities on the land; and, three, there shall be material 
participation by the owner or tenant with respect to any such 
agricultural or horticultural commodities. The problem all goes back to 
ambiguity of the term ``arrangement'' in this section. This section has 
been interpreted to by the IRS to apply not only to the specific lease 
agreement itself, but also to other extraneous production or management 
arrangements between the owner and his lessee. Accordingly, the IRS has 
hit many small self-employed farmers with a tax penalty that they never 
expected and which was never envisioned when Congress wrote the section 
of the Internal Revenue Code in question.
  The legislation I am introducing today clarifies this section by 
replacing the term ``arrangement'' with ``agreement,'' indicating that 
the lease agreement itself must specify the requisite responsibilities 
of the owner in order to be subject to the SE tax. As in so much of 
what we do here, a small change in words can have a dramatic impact on 
people's lives. By clarifying what I believe was intended by Congress 
all along, we will save numerous farmers the heartache and expense of 
litigating with the IRS over whether rental income from their real 
estate is subject to SE tax. This small change in the tax code will 
provide considerable tax relief to farmers in my home State of Wyoming 
and throughout the United States. I thank Chairman Grassley for his 
support of this important legislation and I urge my colleagues to enact 
this important relief for America's family farmers.
                                 ______