Grainnet

by Frank Zaworski, Grainnet

Washington, DC -- Senate Finance Committee Chairman Max Baucus (D-Mont.) Oct. 4 led the panel in a 17-4 vote approving the "Heartland, Habitat, Harvest, and Horticulture Act of 2007."

The fully-offset "4-H Bill" -- totaling $15.05 billion prior to the addition of amendments will create a trust fund to help ranchers and farmers hurt by crop and livestock losses, convert a number of conservation payment programs into fully-offset tax credit programs, and offer additional incentives for rural economic development and energy-related tax relief to aid agricultural producers.

Creating the disaster assistance trust fund and converting payment programs to tax credits will free up previously obligated spending funds for the Senate Agriculture Committee to use elsewhere in farm bill spending.

"This disaster assistance, tax relief, and timely energy incentives will provide a much-needed boost to American agriculture and greater security to our hardworking agricultural producers," said Baucus.

"Whether it's getting a few more dollars in their pockets, rewarding their conservation of American lands, or making sure that one disaster won't force them to sell the family farm, this package is good for producers across the country."

A summary of the major elements of the package follows:

Disaster Assistance

Permanent Agricultural Disaster Assistance Trust Fund: Currently, farmers and ranchers may have to wait years to receive assistance from Congress for agricultural disasters.

Farmers and ranchers need to know that when weather related disasters strike, a dependable safety net exists.

The proposal creates a trust fund for disaster relief that would cover the "shallow losses" not covered by crop insurance.

The proposal requires farmers and ranchers to purchase crop insurance in order to be eligible for disaster assistance.

The trust fund will be funded through allocation of tariffs. Cost of the provision in the modification to the Chairman's mark is $5.1 billion over five and ten years. It will include: Tree Assistance: Assistance to specialty crop farmers whose trees, bushes and vines are lost due to a natural disaster.

Payments will help to defray the cost of reestablishing orchards and vineyards. Pest and Disease Management and Disaster Prevention: A new program under which USDA will conduct early pest detection and surveillance activities in coordination with State departments of agriculture, will prioritize and create action plans to address pest and disease threats to specialty crops, and will create an audit based certification approach to protect against the spread of plant pests which could cause crop losses.

New Farmers

Agricultural Bond Improvements: "Aggie Bonds" are tax-exempt bonds that provide low-interest loans for first-time ranchers and farmers.

Baucus's proposal updates the structure of Aggie Bonds for the first time in 26 years.

The proposal would increase the loan limit from $250,000 to $450,000, and index the limit amount for inflation.

It would also eliminate the dollar limitation in the definition of "substantial farmland."

Cost is $19 million over ten years. Installment Sale Modification for Single-Purpose Agricultural Property: Single-purpose agricultural property (such as chicken barns, pig barns, and vineyard property) may be depreciated more quickly than other real estate, but this depreciation is subject to a recapture provision when the property is sold.

This means that a taxpayer who has taken significant amounts of accelerated depreciation on single-purpose agricultural property may be reluctant or unable to sell or exchange the agricultural property due to the large amount of ordinary income tax due at the time of the sale or exchange.

The proposal allows a taxpayer to pay recapture obligations in installments over a period of time, rather than all at once in the year of the sale.

Cost is $246 million over ten years.

Conservation Conservation Reserve Program Tax Credits: Currently, participants in the Department of Agriculture's Conservation Reserve Program (CRP) receive cash payments.

The proposal will allow a participant in CRP the option to choose between the regular cash payment and a tax credit.

The tax credit will be equal to 100% of the value of the cash payment the participant would have otherwise received and the credit will be excludable from both income and self-employment taxes.

Cost is $3.771 billion over ten years.

Wetlands Reserve Program and Working Grasslands Protection Program Tax Credits: Currently, participants in the Wetlands Reserve Program and Working Grasslands Protection Program receive cash payments for easements they sell to the government.

The proposal will allow a participant in the Wetlands Reserve Program and the Working Grasslands Protection Program the option to choose between the cash payment for the easement or a tax credit.

A tax credit will be equal to the value of the payment they would have received after taxes were paid on the payment.

Cost is $75 million over ten years.

Tax Treatment of Conservation Reserve Program Payments: Farmers enrolling their land in (CRP) receive payment for refraining from farming their property and for engaging in certain conservation practices mandated by the Department of Agriculture.

This proposal provides that CRP payments to retired or disabled individuals are to be treated as rental payments for tax purposes and are therefore excluded from self-employment taxes.

Cost is $206 million over ten years.

Rural Heritage Conservation Extension: Baucus would permanently extend the enhanced tax incentive for conservation easements included in last year's Pension Protection Act.

The provision allows all taxpayers to deduct up to 50% of their adjusted gross income (AGI) for donations of conservation easements and carry forward the deduction up to 15 years.

A bonus allows ranchers and farmers to deduct up to 100% of their AGI for donations of conservation easements.

Cost is $761 million over ten years.

Endangered Species Recovery Act: This proposal establishes two new tax credits for taxpayers who take voluntary measures to aid in the recovery of species that are either listed as threatened or endangered under the Endangered Species Act (ESA) or deemed by the Secretary of Interior or Commerce to be warranted for protection under the ESA.

It also establishes a tax deduction for the cost of actions to implement recovery plans under the ESA, and an exclusion from income tax obligations for payments received under various cost-share conservation programs.

Cost is $1.832 billion over ten years.

Forest Bonds: This proposal establishes a national program allowing the issuance of $1.5 billion in tax-exempt timber conservation bonds.

The bonds must be issued by a non-profit organization whose holdings consist primarily of forests and forest lands and whose board of directors includes specified representation of public officials and conservation organizations.

Proceeds from the sale of bonds must be used for the acquisition of forest and forest lands that are subject to a conservation restriction, which is defined as a perpetual restriction that achieves specified conservation goals.

Cost is $257 million over ten years.

Deduction for Qualified Timber Gain and Timber REIT Rule Modifications: Under current law, gains on timber sales are eligible for capital gains tax treatment.

The proposal contained in the modification to the Chairman's mark provides an election to deduct from gross income 60% of qualified timber gain.

Qualified timber gain is gain from the sale or exchange of timber held for more than one year.

The proposal additionally provides for modernization of timber real estate investment trusts (REIT) rules for timber property, including: (1) clarify that gains from sale of timber held less than one year is qualifying income; (2) mineral royalty income is qualifying income; (3) conforming the taxable REIT subsidiary asset test for timber REITs; and (4) changes to the safe harbors for timber property sales.

Cost is $332 million over 10 years.

See Related Websites/Articles:

• Senate Energy Credit Package

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