Tax Empowerment and Relief for Farmers and Fishermen (TERFF) Act - Amends the Internal Revenue Code to: (1) allow certain commercial farming and fishing businesses a tax deduction for cash contributions (up to 20 percent of taxable income) to a Farm, Fishing, and Ranch Risk Management Account (FFARRM Account); (2) exempt agricultural bonds from private activity bond volume caps; (3) allow individuals a tax deduction for charitable contributions of food (currently restricted to C corporations); (4) extend income averaging to fishermen (currently allowed for farmers) and exclude income averaging for farmers and fishermen from the computation of the alternative minimum tax; (5) modify cooperative marketing rules to include value-added processing involving animals; (6) permit farmer cooperatives to seek declaratory judgments with respect to their tax-exempt status; and (7) allow the allocation of the small ethanol tax credit amounts to patrons of tax-exempt cooperatives.
Amends the Code and title II (Old Age, Survivors and Disability Insurance) of the Social Security Act to exclude certain rental income and conservation reserve program payments from the self-employment tax.
Provides that dividends on the capital stock or other proprietary capital interests of tax-exempt cooperatives shall not reduce the net earnings of such cooperatives.
Modifies involuntary conversion rules to extend from two to four years the replacement period for livestock sold due to drought, flood, or other weather-related conditions.
[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 665 Introduced in Senate (IS)]
108th CONGRESS
1st Session
S. 665
To amend the Internal Revenue Code of 1986 to provide tax relief for
farmers and fishermen, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
March 19, 2003
Mr. Grassley (for himself, Mr. Baucus, Mr. Roberts, Mr. Brownback, Mrs.
Lincoln, Mr. Burns, Mr. Craig, Mr. Crapo, Mr. Fitzgerald, Mr. Johnson,
Mr. Hagel, Mr. Miller, Mr. Dorgan, and Mr. Daschle) introduced the
following bill; which was read twice and referred to the Committee on
Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide tax relief for
farmers and fishermen, and for other purposes.
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.
Sec. 2. Farm, fishing, and ranch risk management accounts.
Sec. 3. Exclusion of rental income from self-employment tax.
Sec. 4. Exclusion of conservation reserve program payments from self-
employment tax.
Sec. 5. Exemption of agricultural bonds from private activity bond
volume limits.
Sec. 6. Modifications to section 512(b)(13).
Sec. 7. Charitable deduction for contributions of food inventory.
Sec. 8. Coordinate farmers and fishermen income averaging and the
alternative minimum tax.
Sec. 9. Modification to cooperative marketing rules to include value
added processing involving animals.
Sec. 10. Extension of declaratory judgment procedures to farmers'
cooperative organizations.
Sec. 11. Small ethanol producer credit.
Sec. 12. Payment of dividends on stock of cooperatives without reducing
patronage dividends.
Sec. 13. Special rules for livestock sold on account of weather-related
conditions.
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
after death of account holder).
``(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 the date of the enactment of
this Act.
SEC. 3. EXCLUSION OF RENTAL INCOME FROM SELF-EMPLOYMENT TAX.
(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 written 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 written lease agreement''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 4. EXCLUSION OF CONSERVATION RESERVE PROGRAM PAYMENTS FROM SELF-
EMPLOYMENT TAX.
(a) Internal Revenue Code.--Section 1402(a)(1) (relating to 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) Social Security Act.--Section 211(a)(1) of the Social Security
Act 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''.
(c) Effective Date.--The amendments made by this section shall
apply to payments made after the date of the enactment of this Act.
SEC. 5. EXEMPTION OF AGRICULTURAL BONDS FROM PRIVATE ACTIVITY BOND
VOLUME LIMITS.
(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 the date of the enactment of this Act.
SEC. 6. MODIFICATIONS TO SECTION 512(B)(13).
(a) In General.--Paragraph (13) of section 512(b) (relating to
special rules for certain amounts received from controlled entities) is
amended by redesignating subparagraph (E) as subparagraph (F) and by
inserting after subparagraph (D) the following new subparagraph:
``(E) Paragraph to apply only to excess payments.--
``(i) In general.--Subparagraph (A) shall
apply only to the portion of a specified
payment received or accrued by the controlling
organization that exceeds the amount which
would have been paid or accrued 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
the larger of--
``(I) such excess determined
without regard to any amendment or
supplement to a return of tax, or
``(II) such excess determined with
regard to all such amendments and
supplements.''.
(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 the Taxpayer Relief Act of 1997 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) Application of paragraph (3) to certain contributions
of food inventory.--For purposes of this section--
``(A) Extension to individuals.--In the case of a
charitable contribution of apparently wholesome food--
``(i) paragraph (3)(A) shall be applied
without regard to whether the contribution is
made by a C corporation, and
``(ii) in the case of a taxpayer other than
a C corporation, the aggregate amount of such
contributions from any trade or business (or
interest therein) of the taxpayer for any
taxable year which may be taken into account
under this section shall not exceed 10 percent
of the taxpayer's net income from any such
trade or business, computed without regard to
this section, for such taxable year.
``(B) Limitation on reduction.--In the case of a
charitable contribution of apparently wholesome food,
notwithstanding paragraph (3)(B), the amount of the
reduction determined under paragraph (1)(A) shall not
exceed the amount by which the fair market value of
such property exceeds twice the basis of such property.
``(C) Determination of basis.--If a taxpayer--
``(i) does not account for inventories
under section 471, and
``(ii) is not required to capitalize
indirect costs under section 263A,
the taxpayer may elect, solely for purposes of
paragraph (3)(B), to treat the basis of any apparently
wholesome food as being equal to 25 percent of the fair
market value of such food.
``(D) Determination of fair market value.--In the
case of a charitable contribution of apparently
wholesome food which is a qualified contribution
(within the meaning of paragraph (3), as modified by
subparagraph (A) of this paragraph) and which, solely
by reason of internal standards of the taxpayer or lack
of market, cannot or will not be sold, the fair market
value of such contribution shall be determined--
``(i) without regard to such internal
standards or such lack of market and
``(ii) by taking into account the price at
which the same or substantially the same food
items (as to both type and quality) are sold by
the taxpayer at the time of the contribution
(or, if not so sold at such time, in the recent
past).
``(E) Apparently wholesome food.--For purposes of
this paragraph, the term `apparently wholesome food'
has the meaning given such term by section 22(b)(2) of
the Bill Emerson Good Samaritan Food Donation Act (42
U.S.C. 1791(b)(2)), as in effect on the date of the
enactment of this paragraph.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made after the date of the enactment of this Act.
SEC. 8. COORDINATE FARMERS AND FISHERMEN INCOME AVERAGING AND THE
ALTERNATIVE MINIMUM TAX.
(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 the date of the enactment of
this Act.
SEC. 9. MODIFICATION TO COOPERATIVE MARKETING RULES TO INCLUDE VALUE
ADDED PROCESSING INVOLVING 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
Involving 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) Conforming Amendment.--Section 521(b) is amended by adding at
the end the following new paragraph:
``(7) Cross Reference.--
``For treatment of value-added
processing involving animals, see section 1388(k).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 10. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO FARMERS'
COOPERATIVE ORGANIZATIONS.
(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 classification or
continuing classification 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.
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 chapter
or for purposes of section 55.''.
(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 entire regular tax and minimum
tax.--
(A) In general.--Subsection (c) of section 38
(relating to limitation based on amount of tax), as
amended by section 301(b) of the Job Creation and
Worker Assistance Act of 2002, is amended by
redesignating paragraph (4) as paragraph (5) and by
inserting after paragraph (3) the following new
paragraph:
``(4) 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) the amounts in subparagraphs
(A) and (B) thereof shall be treated as
being zero, 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 amendments.--Subclause (II) of
section 38(c)(2)(A)(ii), as amended by section
301(b)(2) of the Job Creation and Worker Assistance Act
of 2002, and subclause (II) of section 38(c)(3)(A)(ii),
as added by section 301(b)(1) of such Act, are each
amended by inserting ``or the small ethanol producer
credit'' after ``employee 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) is amended by adding
at the end the following new subsection:
``(k) 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.
SEC. 13. SPECIAL RULES FOR LIVESTOCK SOLD ON ACCOUNT OF WEATHER-RELATED
CONDITIONS.
(a) Rules for Replacement of Involuntarily Converted Livestock.--
Subsection (e) of section 1033 (relating to involuntary conversions) is
amended--
(1) by striking ``Conditions.--For purposes'' and inserting
``Conditions.--
``(1) In general.--For purposes'', and
(2) by adding at the end the following new paragraph:
``(2) Extension of replacement period.--
``(A) In general.--In the case of drought, flood,
or other weather-related conditions described in
paragraph (1) which result in the area being designated
as eligible for assistance by the Federal Government,
subsection (a)(2)(B) shall be applied with respect to
any converted property by substituting `4 years' for `2
years'.
``(B) Further extension by secretary.--The
Secretary may extend on a regional basis the period for
replacement under this section (after the application
of subparagraph (A)) for such additional time as the
Secretary determines appropriate if the weather-related
conditions which resulted in such application continue
for more than 3 years.''.
(b) Income Inclusion Rules.--Section 451(e) (relating to special
rule for proceeds from livestock sold on account of drought, flood, or
other weather-related conditions) is amended by adding at the end the
following new paragraph:
``(3) Special election rules.--If section 1033(e)(2)
applies to a sale or exchange of livestock described in
paragraph (1), the election under paragraph (1) shall be deemed
valid if made during the replacement period described in such
section.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
<all>
Introduced in Senate
Sponsor introductory remarks on measure. (CR S4005-4006)
Read twice and referred to the Committee on Finance. (text of measure as introduced: CR S4006-4009)
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