GAIN FROM DISPOSITION OF PROPERTY USED IN FARMING WHERE FARM LOSSES OFFSET NONFARM INCOME.

SEC. 211. GAIN FROM DISPOSITION OF PROPERTY USED IN FARMING WHERE FARM LOSSES OFFSET NONFARM INCOME. (a) In General.—Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by adding at the end thereof the following new section: “SEC. 1251. GAIN FROM DISPOSITION OF PROPERTY USED IN FARMING WHERE FARM LOSSES OFFSET NONFARM INCOME. “(a) Circumstances Under Which Section Applies.—This section shall apply with respect to any taxable year only if— “(1) there is a farm net loss for the taxable year, or “(2) there is a balance in the excess deductions account as of the close of the taxable year after applying subsection (b)(3)(A). “(b) Excess Deductions Account.— “(1) Requirement.—Each taxpayer subject to this section shall, for purposes of this section, establish and maintain an excess deductions account. “(2) Additions to account.— “(A) General rule.—There shall be added to the excess deductions account for each taxable year an amount equal to the farm net loss. “(B) Exceptions.—In the case of an individual (other than a trust) and, except as provided in this subparagraph, in the case of an electing small business corporation (as defined in section 1371(b)), subparagraph (A) shall apply for a taxable year— “(i) only if the taxpayers nonfarm adjusted gross income for such year exceeds $50,000, and “(ii) only to the extent the taxpayer’s farm net loss for such year exceeds $25,000. This subparagraph shall not apply to an electing small business corporation for a taxable year if on any day of such year a shareholder of such corporation is an individual who, for his taxable year with which or within which the taxable year of the corporation ends, has a farm net loss. “(C) Married individuals.—In the case of a husband or wife who files a separate return, the amount specified in subparagraph (B)(i) shall be $25,000 in lieu of $50,000, and in subparagraph (B)(ii) shall be $12,500 in lieu of $25,000. This subparagraph shall not apply if the spouse of the taxpayer does not have any nonfarm adjusted gross income for the taxable year. “(D) Nonfarm adjusted gross income.—For purposes of this section, the term ‘nonfarm adjusted gross income’ means adjusted gross income (taxable income, in the case of an electing small business corporation) computed without regard to income or deductions attributable to the business of farming. “(3) Subtractions from account.—If there is any amount in the excess deductions account at the close of any taxable year (determined before any amount is subtracted under this paragraph for such year) there shall be subtracted from the account— “(A) an amount equal to the farm net income for such year, plus the amount (determined as provided in regulations prescribed by the Secretary or his delegate) necessary to adjust the account for deductions which aid not result in a reduction of the taxpayer’s tax under this subtitle for the taxable year or any preceding taxable year, and 83 Stat. 567 “(B) after applying paragraph (2) or subparagraph (A) of this paragraph (as the case may be), an amount equal to the sum of the amounts treated, solely by reason of the application of subsection (c), as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231. “(4) Exception for taxpayers using certain accounting methods.— “(A) General rule.—Except to the extent that the taxpayer has succeeded to an excess deductions account as provided in paragraph (5), additions to the excess deductions account shall not be required by a taxpayer who elects to compute taxable income from farming (i) by using inventories, and (ii) by charging to capital account all expenditures paid or incurred which are properly chargeable to capital account (including such expenditures which the taxpayer may, under this chapter or regulations prescribed thereunder, otherwise treat or elect to treat as expenditures which are not chargeable to capital account). “(B) Time, manner, and effect of election.—An election under subparagraph (A) for any taxable year shall be filed within the time prescribed by law (including extensions thereof) for filing the return for such taxable year, and shall be made and filed in such manner as the Secretary or his delegate shall prescribe by regulations. Such election shall be binding on the taxpayer for such taxable year and for all subsequent taxable years and may not be revoked except with the consent of the Secretary or his delegate. “(C) Change of method of accounting, etc.—If, in order to comply with the election made under subparagraph (A), a taxpayer changes his method of accounting in computing taxable income from the business of farming, such change shall be treated as having been made with the consent of the Secretary or his delegate and for purposes of section 481(a)(2) shall be treated as a change not initiated by the taxpayer. “(5) Transfer of account.— “(A) Certain corporate transactions.—In the case of a transfer described in subsection (d)(3) to which section 371(a), 374(a), or 381 applies, the acquiring corporation shall succeed to and take into account as of the close of the day of distribution or transfer, the excess deductions account of the transferor. “(B) Certain gifts.—If— “(i) farm recapture property is disposed of by gift, and “(ii) the potential gain (as defined in subsection (e)(5)) on farm recapture property disposed of by gift during any one-year period in which any such gift occurs is more than 25 percent of the potential gain on farm recapture property held by the donor immediately prior to the first of such gifts, each donee of the property shall succeed (at the time the first of such gifts is made, but in an amount determined as of the close of the donor’s taxable year in which the first of such gifts is made) to the same proportion of the donor’s excess deductions account (determined, after the application of paragraphs (2) and (3) 83 Stat. 568 with respect to the donor, as of the close of such taxable year), as the potential gain on the property received by such donee bears to the aggregate potential gain on farm recapture property held by the donor immediately prior to the first of such gifts. “(6) Joint return.—In the case of an addition to an excess deductions account for a taxable year for which a joint return was filed under section 6013, for any subsequent taxable year for which a separate return was filed the Secretary or his delegate shall provide rules for allocating any remaining amount of such addition in a manner consistent with the purposes of this section. “(c) Ordinary Income.— “(1) General rule.—Except as otherwise provided in this section, if farm recapture property (as defined in subsection (e)(1)) is disposed of during a taxable year beginning after December 31, 1969, the amount by which— “(A) in the case of a sale, exchange, or involuntary conversion, the amount realized, or “(B) in the case of any other disposition, the fair market value of such property, exceeds the adjusted basis of such property shall be treated as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231. Such gain shall be recognized notwithstanding any other provision of this subtitle. “(2) Limitation.— “(A) Amount in excess deductions account.—The aggregate of the amounts treated under paragraph (1) as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231 for any taxable year shall not exceed the amount in the excess deductions account at the close of the taxable year after applying subsection (b)(3)(A). “(B) Dispositions taken into account.—If the aggregate of the amounts to which paragraph (1) applies is limited by the application of subparagraph (A), paragraph (1) shall apply in respect of such dispositions (and in such amounts) as provided under regulations prescribed by the Secretary or his delegate. “(C) Special rule for dispositions of land.—In applying subparagraph (A), any gain on the sale or exchange of land shall be taken into account only to the extent of its potential gain (as defined in subsection (e)(5)). “(d) Exceptions and Special Rules.— “(1) Gifts.—Subsection (c) shall not apply to a disposition by gift. “(2) Transfer at death.—Except as provided in section 691 (relating to income in respect of a decedent), subsection (c) shall not apply to a transfer at death. “(3) Certain corporate transactions.—If the basis of property in the hands of a transferee is determined by reference to its basis in the hands of the transferor by reason of the application of sections 332, 351, 361, 371(a), or 374(a), then the amount of gain taken into account by the transferor under subsection (c)(1) shall not exceed the amount of gain recognized to the transferor on the transfer of such property (determined without regard to this section). This paragraph shall not apply to a disposition to an organization (other than a cooperative described in section 521) which is exempt from the tax imposed by this chapter. 83 Stat. 569 “(4) Like kind exchanges; involuntary conversion, etc.—If property is disposed of and gain (determined without regard to this section) is not recognized in whole or in part under section 1031 or 1033, then the amount of gain taken into account by the transferor under subsection (c)(1) shall not exceed the sum of— “(A) the amount of gain recognized on such disposition (determined without regard to this section), plus “(B) the fair market value of property acquired with respect to which no gain is recognized under subparagraph (A), but which is not farm recapture property. “(5) Partnerships.— “(A) In general.—In the case of a partnership, each partner shall take into account separately his distributive share of the partnership’s farm net losses, gains from dispositions of farm recapture property, and other items in applying this section to the partner. “(B) Transfers to partnerships.—If farm recapture property is contributed to a partnership and gain (determined without regard to this section) is not recognized under section 721, then the amount of gain taken into account by the transferor under subsection (c)(1) shall not exceed the excess of the fair market value of farm recapture property transferred over the fair market value of the partnership interest attributable to such property. If the partnership agreement provides for an allocation of gain to the contributing partner with respect to farm recapture property contributed to the partnership (as provided in section 704(c)(2)), the partnership interest of the contributing partner shall be deemed to be attributable to such property. “(6) Property transferred to controlled corporations.—Except for transactions described in subsection (b)(5)(A), in the case of a transfer, described in paragraph (3), of farm recapture property to a corporation, stock or securities received by a transferor in the exchange shall be farm recapture property to the extent attributable to the fair market value of farm recapture property (or, in the case of land, if less, the adjusted basis plus the potential gain (as defined in subsection (e)(5)) on farm recapture property) contributed to the corporation by such transferor. “(e) Definitions.—For purposes of this section— “(1) Farm recapture property.—The term ‘farm recapture property’ means— “(A) any property (other than section 1250 property) described in paragraph (1) (relating to business property held for more than 6 months), (3) (relating to livestock), or (4) (relating to an unharvested crop) of section 1231(b) which is or has been used in the trade or business of farming by the taxpayer or by a transferor in a transaction described in subsection (b)(5), and “(B) any property the basis of which in the hands of the taxpayer is determined with reference to the adjusted basis of property which was farm recapture property in the hands of the taxpayer within the meaning of subparagraph (A). “(2) Farm net loss.—The term ‘farm net loss’ means the amount by which— “(A) the deductions allowed or allowable by this chapter which are directly connected with the carrying on of the trade or business of farming, exceed 83 Stat. 570 “(B) the gross income derived from such trade or business. Gains and losses on the disposition of farm recapture property referred to in section 1231(a) (determined without regard to this section or section 1245(a)) shall not be taken into account. “(3) Farm net income.—The term ‘farm net income’ means the amount by which the amount referred to in paragraph (2)(B) exceeds the amount referred to in paragraph (2)(A). “(4) Trade or business of farming.— “(A) Horse racing.—In the case of a taxpayer engaged in the raising of horses, the term ‘trade or business of farming’ includes the racing of horses. “(B) Several businesses of farming.—If a taxpayer is engaged in more than one trade or business of farming, all such trades and businesses shall be treated as one trade or business. “(5) Potential gain.—The term ‘potential gain’ means an amount equal to the excess of the fair market value of property over its adjusted basis, but limited in the case of land to the extent of the deductions allowable in respect to such land under sections 175 (relating to soil and water conservation expenditures) and 182 (relating to expenditures by farmers for clearing land) for the taxable year and the 4 preceding taxable years.” (b) Conforming Amendments.— (1) Section 301(b)(1)(B)(ii) (relating to corporate distributions of property) is amended by striking out “or 1250(a)” and inserting in lieu thereof “1250(a), 1251(c), or 1252(a)”. (2) Section 301(d)(2)(B) (relating to the basis of property distributed by a corporation) is amended by striking out “or 1250(a)” and inserting in lieu thereof “1250(a), 1251(c), or 1252(a)”. (3) Section 312(c)(3) (relating to adjustment to corporate earnings and profits) is amended by striking out “or 1250 (a)” and inserting in lieu thereof “1250(a), 1251(c), or 1252(a)”. (4) Section 341(e)(12) (relating to nonapplication of section 1245(a) with respect to collapsible corporations) is amended by striking out “and 1250(a)” and inserting in lieu thereof “1250(a), 1251(c), and 1252(a)”. (5) Section 453(d)(4)(B) (relating to distribution of installment obligations under certain liquidations) is amended by striking out “or 1250(a)” and inserting in lieu thereof “1250(a), 1251(c), or 1252(a)”. (6) Section 751(c) (relating to unrealized receivables in partnership transactions) is amended by striking out “and section 1250 property (as defined in section 1250(c))” and inserting in lieu thereof “section 1250 property (as defined in section 1250(c)), farm recapture property (as defined in section 1251(e)(1)), and farm land (as defined in section 1252(a))”; and by striking out “1250(a)” and inserting in lieu thereof “1250(a), 1251(c), or 1252(a)”. (7) The table of sections for part IV of subchapter P of chapter 1 is amended by adding at the end thereof the following: “Sec. 1251. Gain from disposition of property used in farming where farm losses offset nonfarm income.” (c) Effective Dates.—The amendments made by this section shall apply to taxable years beginning after December 31, 1969.