[Congressional Record Volume 158, Number 151 (Thursday, November 29, 2012)]
[Senate]
[Pages S7219-S7220]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. UDALL of Colorado (for himself, Mr. Crapo, Mr. Bennet, and 
        Mr. Barrasso):
  S. 3650. A bill to amend the Internal Revenue Code of 1986 to 
facilitate water leasing and water transfers to promote conservation 
and efficiency; to the Committee on Finance.
  Mr. UDALL of Colorado. Mr. President, today I am introducing 
bipartisan legislation that will improve the viability of agriculture 
and rural communities in western States like Colorado. This legislation 
will make it easier for mutual ditch and irrigation companies, which 
are an integral part of agriculture in arid regions where you often 
have to transport irrigation water over long distances, to remain 
profitable.
  I thank my colleagues Senators Crapo, Bennet and Barrasso for joining 
me in this effort.
  Mutual ditch and irrigation companies are primarily associations of 
farmers who band together to construct and operate water delivery and 
storage systems for use on semi-arid farmland. For 150 years, mutual 
ditch and irrigation companies have installed and maintained this kind 
of infrastructure to convey water to irrigated lands in the West.
  These companies can qualify for tax-exempt status if at least 85 
percent of their income comes from their member assessments. The 85-
percent rule is meant to ensure that the members of tax-exempt 
cooperatives are not able to enrich themselves by making investments 
unrelated to their charitable purpose.
  Over time, however, the cost to maintain and operate aging water 
infrastructure has made it impossible for many mutual ditch and 
irrigation companies to operate solely on member income. If member 
assessments were large enough to cover the true cost of operations, it 
would be cost prohibitive for most farmers to use the water to irrigate 
crops, leading to a loss of irrigated farmland.
  To sustain irrigated farmland, ditch and irrigation companies 
supplement the cost of operations with non-member income from, for 
example, recreational leases, crossing fees, storage rights and the 
exchange of water rights. This is a good thing, but this supplemental 
income can jeopardize the company's tax-exempt status.
  My legislation would exempt certain sources of income from the 85-
percent member income test for mutual ditch and irrigation companies. 
However, to be excluded, the revenue from these sources must be used 
for the tax-exempt purposes of the company. My legislation specifically 
requires non-member income to be used for operations or maintenance of 
the mutual ditch or irrigation company in order to be exempted from the 
85-percent test.
  By excluding these revenue streams, we can support local agriculture 
and help ditch and irrigation companies stay in business, while at the 
same time providing for more efficient use of precious water resources. 
Further, by requiring that the proceeds be used exclusively for 
operations and maintenance of the ditch or irrigation company, we will 
ensure that this income is reinvested in water infrastructure, helping 
to create and preserve rural jobs and our agricultural heritage.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record. 
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 3650

       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 ``Ditch and Irrigation Company 
     Tax Reform Act''.

     SEC. 2. FACILITATE WATER LEASING AND WATER TRANSFERS TO 
                   PROMOTE CONSERVATION AND EFFICIENCY.

       (a) In General.--Paragraph (12) of section 501(c) of the 
     Internal Revenue Code of 1986 is amended by adding at the end 
     the following new subparagraph:
       ``(I) Treatment of mutual ditch or irrigation companies.--
       ``(i) In general.--In the case of a mutual ditch or 
     irrigation company or like organization, subparagraph (A) 
     shall be applied without taking into account any income 
     received or accrued--

       ``(I) from the sale, lease, or exchange of fee or other 
     interests in real property, including interests in water,

[[Page S7220]]

       ``(II) from the sale or exchange of stock in a mutual ditch 
     or irrigation company or like organization or contract rights 
     for the delivery or use of water, or
       ``(III) from the investment of proceeds from sales, leases, 
     or exchanges under subclauses (I) and (II),

     except that any income received under subclause (I), (II), or 
     (III) which is distributed or expended for expenses other 
     than operations and maintenance of the mutual ditch or 
     irrigation company or like organization shall be treated as 
     non-member income in the year in which it is distributed or 
     expended. For purposes of the preceding sentence, expenses 
     other than operations and maintenance include expenses for 
     the construction of conveyances designed to deliver water 
     outside of the mutual ditch or irrigation company or like 
     organization system.
       ``(ii) Treatment of organizational governance.--In the case 
     of a mutual ditch or irrigation company or like organization, 
     where State law provides that such a company or organization 
     may be organized in a manner that permits voting on a basis 
     which is pro-rata to share ownership on corporate governance 
     matters, subparagraph (A) shall be applied without taking 
     into account whether its member shareholders have one vote on 
     corporate governance matters per share held in the 
     corporation. Nothing in this clause shall be construed to 
     create any inference about the requirements of this 
     subsection for companies or organizations not included in 
     this clause.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

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