[Congressional Record Volume 149, Number 112 (Friday, July 25, 2003)]
[Senate]
[Page S9974]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HAGEL (for himself and Mr. Dorgan):
  S. 1464. A bill to amend the Internal Revenue Code of 1986 to provide 
an exclusion for gain from the sale of farmland to encourage the 
continued use of the property for farming, and for other purposes; to 
the Committee on Finance.
  Mr. HAGEL. Mr. President, I ask unanimous consent that the 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. 1464

       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 ``Beginning Farmers and 
     Ranchers Tax Incentive Act of 2003''.

     SEC. 2. EXCLUSION OF GAIN FROM SALE OF CERTAIN FARMLAND.

       (a) In General.--Part III of subchapter B of chapter 1 of 
     the Internal Revenue Code of 1986 (relating to items 
     specifically excluded from gross income) is amended by adding 
     after section 121 the following new section:

     ``SEC. 121A. EXCLUSION OF GAIN FROM SALE OF QUALIFIED FARM 
                   PROPERTY.

       ``(a) Exclusion.--In the case of a natural person, gross 
     income shall not include--
       ``(1) 100 percent of the gain from the sale or exchange of 
     qualified farm property to a first-time farmer (as defined in 
     section 147(c)(2)(C) (determined without regard to clause 
     (i)(II) thereof)) who certifies that the use of such property 
     shall be as a farm for farming purposes for not less than 10 
     years after such sale or exchange,
       ``(2) 50 percent of the gain from the sale or exchange of 
     qualified farm property to any other person who certifies 
     that the use of such property shall be as a farm for farming 
     purposes for not less than 10 years after such sale or 
     exchange, and
       ``(3) 25 percent of the gain from the sale or exchange of 
     qualified farm property to any other person for any other 
     use.
       ``(b) Limitation on Amount of Exclusion.--
       ``(1) In general.--The amount of gain excluded from gross 
     income under subsection (a) with respect to any taxable year 
     shall not exceed $500,000 ($250,000 in the case of a married 
     individual filing a separate return), reduced by the 
     aggregate amount of gain excluded under subsection (a) for 
     all preceding taxable years.
       ``(2) Special rule for joint returns.--The amount of the 
     exclusion under subsection (a) on a joint return for any 
     taxable year shall be allocated equally between the spouses 
     for purposes of applying the limitation under paragraph (1) 
     for any succeeding taxable year.
       ``(c) Qualified Farm Property.--
       ``(1) Qualified farm property.--For purposes of this 
     section, the term `qualified farm property' means real 
     property located in the United States if, during periods 
     aggregating 3 years or more of the 5-year period ending on 
     the date of the sale or exchange of such real property--
       ``(A) such real property was used as a farm for farming 
     purposes by the taxpayer or a member of the family of the 
     taxpayer, and
       ``(B) there was material participation by the taxpayer (or 
     such a member) in the operation of the farm.
       ``(2) Definitions.--For purposes of this subsection, the 
     terms `member of the family', `farm', and `farming purposes' 
     have the respective meanings given such terms by paragraphs 
     (2), (4), and (5) of section 2032A(e).
       ``(3) Special rules.--For purposes of this section, rules 
     similar to the rules of paragraphs (4) and (5) of section 
     2032A(b) and paragraphs (3) and (6) of section 2032A(e) shall 
     apply.
       ``(d) Other Rules.--For purposes of this section, rules 
     similar to the rules of subsection (e) and subsection (f) of 
     section 121 shall apply.
       ``(e) Treatment of Disposition or Change in Use of 
     Property.--
       ``(1) In general.--If, as of the close of any taxable year, 
     there is a recapture event with respect to any qualified farm 
     property transferred to the taxpayer in a sale or exchange 
     described in paragraph (1) or (2) of subsection (a), then the 
     tax of the taxpayer under this chapter for such taxable year 
     shall be increased by an amount equal to the product of--
       ``(A) the applicable recapture percentage, and
       ``(B) 10 percent of the taxpayer's adjusted basis in the 
     property on the date such property was transferred to the 
     taxpayer.
       ``(2) Applicable recapture percentage.--
       ``(A) In general.--For purposes of this subsection, the 
     applicable recapture percentage shall be determined from the 
     following table:

  
``If the recapture event occurs The applicable recapture percentage is:
    Years 1 through 5............................................100   
    Year 6........................................................80   
    Year 7........................................................60   
    Year 8........................................................40   
    Year 9........................................................20   
    Years 10 and thereafter........................................0.  
       ``(B) Years.--For purposes of subparagraph (A), year 1 
     shall begin on the date of the sale or exchange described in 
     paragraph (1) or (2) of subsection (a).
       ``(3) Recapture event defined.--For purposes of this 
     subsection, the term `recapture event' means--
       ``(A) Cessation of operation.--The cessation of the 
     operation of any property the sale or exchange of which to 
     the taxpayer is described in paragraph (1) or (2) of 
     subsection (a) as a farm for farming purposes.
       ``(B) Change in ownership.--
       ``(i) In general.--Except as provided in clause (ii), the 
     disposition of a taxpayer's interest in any property the sale 
     or exchange of which to the taxpayer is described in 
     paragraph (1) or (2) of subsection (a).
       ``(ii) Agreement to assume recapture liability.--Clause (i) 
     shall not apply if the person acquiring such interest in the 
     property agrees in writing to assume the recapture liability 
     of the person disposing of such interest in effect 
     immediately before such disposition. In the event of such an 
     assumption, the person acquiring the interest in the property 
     shall be treated as the taxpayer for purposes of assessing 
     any recapture liability (computed as if there had been no 
     change in ownership).
       ``(4) Special rules.--
       ``(A) No credits against tax.--Any increase in tax under 
     this subsection shall not be treated as a tax imposed by this 
     chapter for purposes of determining the amount of any credit 
     under subpart A, B, or D of this part.
       ``(B) No recapture by reason of hardship.--The increase in 
     tax under this subsection shall not apply to any disposition 
     of property or cessation of the operation of any property as 
     a farm for farming purposes by reason of any hardship as 
     determined by the Secretary.''.
       (b) Conforming Amendment.--The table of sections for part 
     III of subchapter B of chapter 1 of the Internal Revenue Code 
     of 1986 is amended by adding after the item relating to 
     section 121 the following new item:

``Sec. 121A. Exclusion of gain from sale of qualified farm property.''.
       (c) Effective Date.--The amendment made by this section 
     shall apply to any sale or exchange on or after the date of 
     the enactment of this Act, in taxable years ending after such 
     date.
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