109 HR 5932 IH: Farm Risk Management Act of
U.S. House of Representatives
2006-07-27
text/xml
EN
Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.
1.This Act may be cited as the
Farm Risk Management Act of
2006
.
2.Farm risk
management accounts
(a)Part VII of subchapter B of chapter 1 of the Internal
Revenue Code of 1986 (relating to additional itemized deductions for
individuals) is amended by redesignating section 224 as section 225 and by
inserting after section 223 the following new section:
224.Farm risk
management accounts
(a)In the case of a qualified farmer, there shall be allowed
as a deduction for the taxable year an amount equal to the aggregate amount
paid in cash during such taxable year by or on behalf of such individual to a
farm risk management account of such individual.
(b)Minimum
contribution requirementA deduction shall not be allowed under
subsection (a) for the taxable year with respect to an individual if, during
such taxable year, the aggregate amount contributed by such individual to farm
risk management accounts of the individual is not equal to at least 2 percent
of the individual’s 3-year average of income derived from farming or
ranching.
(c)Account balance
limitationA deduction shall not be allowed under subsection (a)
with respect to any portion of a contribution to a farm risk management account
of an individual if such contribution would result in the sum of the balances
in all such accounts of such individual to exceed 150 percent of the
individual’s 3-year average of income derived from farming or ranching.
(d)For purposes of this section, the term qualified
farmer means, with respect to any taxable year, any individual who,
during such year—
(1)was engaged in the
trade or business of farming or ranching,
(2)has in effect an
agreement with the Secretary of Agriculture to accept contributions under this
section in lieu of—
(A)receiving, after the transition period of
the individual referred to in subsection (g)(2), any Federal subsidy toward the
premium of any crop insurance policy, or
(B)obtaining
noninsured crop assistance under section 196 of the Agricultural Market
Transition Act (7 U.S.C. 7333), and
(3)does not have any federally subsidized crop
insurance policy after the transition period of the individual referred to in
subsection (g)(2).
(e)Farm risk
management accountFor purposes of this section—
(1)The term farm risk management account means
a trust created or organized in the United States as a farm risk management
account exclusively for the purpose of making qualified distributions, but only
if the written governing instrument creating the trust meets the following
requirements:
(A)No contribution
will be accepted unless it is in cash.
(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 will be invested in securities issued by the United States Treasury or in
such other low-risk interest-bearing securities as are approved by the
Secretary.
(D)The assets of the
trust will not be commingled with other property except in a common trust fund
or common investment fund.
(E)The interest of an
individual in the balance in his account is nonforfeitable.
(2)The term qualified distribution means
any amount paid from a farm risk management account to the account beneficiary
to the extent that such amount when added to all other amounts paid from such
accounts to such beneficiary during the taxable year (other than rollover
contributions) does not exceed the excess (if any) of—
(A)80 percent of such
beneficiary’s 3-year average of income derived from farming or ranching,
over
(B)such beneficiary’s
gross income derived from farming or ranching for the taxable year.
(3)3-year average
of income derived from farming or ranchingThe term 3-year
average of income derived from farming or ranching means, with respect
to any individual—
(A)the sum of the
individual’s gross income derived from farming or ranching for the taxable year
and the 2 preceding taxable years, divided by
(B)the number of
taxable years taken into account under clause (i) during which such individual
was engaged in the trade or business of farming or ranching.
(4)The term account beneficiary means the
individual on whose behalf the farm risk management account was
established.
(5)
(A)For purposes of this title, any amount paid to a
farm risk management account by the Secretary of Agriculture under subsection
(g) shall be included in the account beneficiary’s gross income in the taxable
year for which the amount was contributed, whether or not a deduction for such
payment is allowable under this section to the beneficiary.
(B)Rules similar to the following rules shall apply for
purposes of this section:
(i)Section 219(d)(2)
(relating to no deduction for rollovers).
(ii)Section 219(f)(3)
(relating to time when contributions deemed made).
(iii)Section 408(g)
(relating to community property laws).
(iv)Section 408(h)
(relating to custodial accounts).
(f)Tax treatment of
accounts
(1)A farm risk management account is exempt from taxation
under this subtitle unless such account has ceased to be a farm risk management
account. Notwithstanding the preceding sentence, any such account is subject to
the taxes imposed by section 511 (relating to imposition of tax on unrelated
business income of charitable, etc. organizations).
(2)If the account beneficiary ceases to engage in the trade
or business of farming or ranching, such trade or business becomes covered
under any crop insurance policy for which a premium subsidy is paid by the
Secretary of Agriculture, or the account beneficiary seeks noninsured crop
assistance under section 196 of the Agricultural Market Transition Act (7
U.S.C. 7333)—
(A)all farm risk
management accounts of such individual shall cease to be such accounts,
and
(B)the balance of all
such accounts shall be treated as—
(i)distributed to
such individual, and
(ii)not paid in a
qualified distribution.
(g)Federal
contribution to accounts
(1)Using amounts in the
insurance fund established under section 516(c) of the Federal Crop Insurance
Act (7 U.S.C. 1516(c)), the Secretary of Agriculture shall match the
contributions made for a taxable year to farm risk management accounts of an
individual who has entered into the agreement with the Secretary required by
subsection (d)(2) in an aggregate amount equal to 2 percent of the individual’s
3-year average of income derived from farming or ranching.
(2)Notwithstanding
paragraph (1), during the first 3 taxable years for which the Secretary of
Agriculture makes contributions under such paragraph to farm risk management
accounts of an individual, the amount contributed by the Secretary may not
exceed—
(A)for the first
taxable year, 25 percent of the amount the Secretary would otherwise contribute
under paragraph (1) for that taxable year,
(B)for the second
taxable year, 50 percent of the amount the Secretary would otherwise contribute
under paragraph (1) for that taxable year, and
(C)for the third taxable year, 75 percent of
the amount the Secretary would otherwise contribute under paragraph (1) for
that taxable year.
(3)During the
transition period referred to in paragraph (2) for an individual receiving
contributions under this subsection, the individual shall procure, as a
condition of receiving the contributions, at least catastrophic risk protection
provided under section 508(b) of the Federal Crop Insurance Act (7 U.S.C.
1508(b)). During this period, the individual would be covered with any claim at
the same level of coverage purchased, but subject to the condition that any
claim would first use amounts in the farm risk management accounts of an
individual before conventional crop insurance would make any payment, if
necessary.
(h)Tax treatment of
distributions
(1)Any amount paid or distributed out of a farm risk
management account (other than a rollover contribution described in paragraph
(4)) shall be included in gross income.
(2)Additional tax
on non-qualified distributions
(A)The tax imposed by this chapter on the account
beneficiary for any taxable year in which there is a payment or distribution
from a farm risk management account of such beneficiary which is not a
qualified distribution shall be increased by 15 percent of the amount of such
payment or distribution which is not a qualified distribution.
(B)Exception for
disability or deathSubparagraph (A) shall not apply if the
payment or distribution is made after the account beneficiary becomes disabled
within the meaning of section 72(m)(7) or dies.
(3)Excess
contributions returned before due date of return
(A)If any excess contribution is contributed for a taxable
year to a farm risk management account of an individual, paragraph (2) shall
not apply to distributions from the farm risk management accounts of such
individual (to the extent such distributions do not exceed the aggregate excess
contributions to all such accounts of such individual for such year) if—
(i)such distribution
is received by the individual on or before the last day prescribed by law
(including extensions of time) for filing such individual's return for such
taxable year, and
(ii)such distribution
is accompanied by the amount of net income attributable to such excess
contribution.
Any net
income described in clause (ii) shall be included in the gross income of the
individual for the taxable year in which it is received.(B)For purposes of subparagraph (A), the term
excess contribution means any contribution (other than a rollover
contribution) which is not deductible under this section.
(4)An amount is described in this paragraph as a
rollover contribution if it meets the requirements of subparagraphs (A) and
(B).
(A)For purposes of this section, any amount paid or
distributed from a farm risk management account to the account beneficiary
shall be treated as a qualified distribution to the extent the amount received
is paid into a farm risk management account for the benefit of such beneficiary
not later than the 60th day after the day on which the beneficiary receives the
payment or distribution.
(B)This paragraph shall not apply to any amount described
in subparagraph (A) received by an individual from a farm risk management
account if, at any time during the 1-year period ending on the day of such
receipt, such individual received any other amount described in subparagraph
(A) from a farm risk management account which was not included in the
individual's gross income because of the application of this paragraph.
(5)Transfer of
account incident to divorceThe transfer of an individual's
interest in a farm risk management account to an individual's spouse or former
spouse under a divorce or separation instrument described in subparagraph (A)
of section 71(b)(2) shall not be considered a taxable transfer made by such
individual notwithstanding any other provision of this subtitle, and such
interest shall, after such transfer, be treated as a farm risk management
account with respect to which such spouse is the account beneficiary.
(6)Treatment after
death of account beneficiary
(A) Treatment if
designated beneficiary is spouseIf the account beneficiary’s
surviving spouse acquires such beneficiary’s interest in a farm risk management
account by reason of being the designated beneficiary of such account at the
death of the account beneficiary, such farm risk management account shall be
treated as if the spouse were the account beneficiary.
(B)
(i)If, by reason of the death of the account beneficiary,
any person acquires the account beneficiary’s interest in a farm risk
management account in a case to which subparagraph (A) does not apply—
(I)such account shall
cease to be a farm risk management account as of the date of death, and
(II)an amount equal
to the fair market value of the assets in such account on such date shall be
included if such person is not the estate of such beneficiary, in such person’s
gross income for the taxable year which includes such date, or if such person
is the estate of such beneficiary, in such beneficiary’s gross income for the
last taxable year of such beneficiary.
(ii)Deduction for
estate taxesAn appropriate deduction shall be allowed under
section 691(c) to any person (other than the decedent or the decedent’s spouse)
with respect to amounts included in gross income under clause (i) by such
person.
(i)The
Secretary may require the trustee of a farm risk management account to make
such reports regarding such account to the Secretary and to the account
beneficiary with respect to contributions, distributions, and such other
matters as the Secretary determines appropriate. The reports required by this
subsection shall be filed at such time and in such manner and furnished to such
individuals at such time and in such manner as may be required by the
Secretary.
.
(b)Deduction
allowed whether or not individual itemizes other
deductionsSubsection (a) of section 62 of such Code is amended
by inserting after paragraph (20) the following new paragraph:
(21)Farm risk
management accountsThe deduction allowed by section
224.
.
(c)Tax on excess
contributionsSection 4973 of such Code (relating to tax on
excess contributions to certain tax-favored accounts and annuities) is
amended—
(1)by striking
or
at the end of subsection (a)(4), by inserting
or
at the end of subsection (a)(5), and by inserting after
subsection (a)(5) the following new paragraph:
(6)a farm risk
management account (within the meaning of section
224(e)),
,
and
(2)by adding at the
end the following new subsection:
(h)Excess
contributions to farm risk management accountsFor purposes of
this section, in the case of farm risk management accounts (within the meaning
of section 224(e)), the term excess contribution means the sum
of—
(1)the aggregate
amount contributed for the taxable year to the accounts (other than rollover
contributions described in section 224(h)(4)) which is not allowable as a
deduction under section 224 for such year, and
(2)the amount
determined under this subsection for the preceding taxable year, reduced by the
sum of—
(A)the distributions
out of the accounts with respect to which additional tax was imposed under
section 224(h)(2), and
(B)the excess (if
any) of—
(i)the maximum amount
allowable as a deduction under section 224(c) for the taxable year, over
(ii)the amount
contributed to the accounts for the taxable year.
For
purposes of this subsection, any contribution which is distributed out of the
farm risk management account in a distribution to which section 224(h)(3)
applies shall be treated as an amount not
contributed..
(d)Tax on
prohibited transactions
(1)Section 4975(c) of
such Code (relating to tax on prohibited transactions) is amended by adding at
the end the following new paragraph:
(7)Special rule for
farm risk management accountsAn individual for whose benefit a
farm risk management account (within the meaning of section 224(e)) 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 farm risk management account by reason of the application of section
224(f)(2) to such
account.
.
(2)Section 4975(e)(1)
of such Code is amended by redesignating subparagraphs (F) and (G) as
subparagraphs (G) and (H), respectively, and by inserting after subparagraph
(E) the following new subparagraph:
(F)a farm risk
management account described in section
224(e),
.
(e)Failure to
provide reports on farm risk management accountsSection
6693(a)(2) of such Code (relating to reports) is amended by redesignating
subparagraphs (D) and (E) as subparagraphs (E) and (F), respectively, and by
inserting after subparagraph (C) the following new subparagraph:
(D)section 224(i)
(relating to farm risk management
accounts),
.
(f)The table of sections for part VII of subchapter B of
chapter 1 of such Code is amended by striking the last item and inserting the
following:
Sec. 224. Farm risk management
accounts.
Sec. 225. Cross
reference.
.
(g)Conforming
amendments to federal crop insurance act
(1)Payment of
portion of premium by federal crop insurance corporationSection 508(e) of the Federal Crop
Insurance Act (7 U.S.C. 1508(e)) is amended by adding at the end the following
new paragraph:
(6)Transition to
farm risk management accountsIf a producer enters into an agreement
under section 224 of the Internal Revenue Code of 1986 to forgo any Federal
subsidy toward the premium of any crop insurance policy in exchange for
contributions by the Secretary to a farm risk management account of the
producer, then, in connection with the purchase of any crop insurance policy
during the first 3 taxable years for which the Secretary makes contributions
under subsection (g) of such section to a farm risk management account of the
producer, the amount of the premium to be paid by the Corporation under this
subsection shall be equal to—
(A)for the first taxable year, 75 percent of
the amount of the premium that would otherwise be paid by the Corporation under
this subsection;
(B)for the second taxable year, 50 percent of
the amount of the premium that would otherwise be paid by the Corporation under
this subsection; and
(C)for the third taxable year, 25 percent of
the amount of the premium that would otherwise be paid by the Corporation under
this
subsection.
.
(2)Section 516(b) of such Act (7 U.S.C. 1516(b)) is amended
by adding at the end the following new paragraph:
(3)Contributions to
farm risk management accountsThe Secretary shall use the insurance fund
established under subsection (c) to make required contributions to farm risk
management accounts established under section 224 of the Internal Revenue Code
of
1986.
.
(h)The amendments made by this section shall apply to taxable
years ending after the date of the enactment of this Act.