Water and Agriculture Tax Reform Act of 2018

This bill, known as H. R. 519 or the Water and Agriculture Tax Reform Act of 2018, aims to amend the Internal Revenue Code of 1986 in order to make it easier to lease and transfer water for the purpose of promoting conservation and efficiency.

Section 1: Short Title

This section states that the bill may be referred to as the "Water and Agriculture Tax Reform Act of 2018".

Section 2: Facilitate Water Leasing and Water Transfers to Promote Conservation and Efficiency

This section outlines specific amendments to the current Internal Revenue Code of 1986 in order to facilitate water leasing and transfers to encourage conservation and efficiency.

(a) In General: This sub-section introduces an amendment to Paragraph (12) of section 501(c) of the Internal Revenue Code of 1986. The amendment adds a new subparagraph (J) which specifically addresses the treatment of mutual ditch irrigation companies.

The amendment clarifies that in the case of mutual ditch or irrigation companies, certain aspects of subparagraph (A) should not apply. Specifically, income received or accrued from the sale, lease, or exchange of fee or other interests in property (including water) should not be considered for taxation purposes, except when such income is derived from the sale, lease, or transfer of water to nonmembers outside the river basin in which the company operates.

The amendment also exempts income received or accrued from the sale or exchange of stock in a mutual ditch or irrigation company or contract rights for water delivery or use. Furthermore, any income generated from the investment of the aforementioned income is also exempted, except when such income is distributed or expended for expenses not related to operations, maintenance, and capital improvements of the company.

The amendment further clarifies that expenses for the construction of conveyances designed to deliver water outside of the company's system should be considered as nonmember income.

In cases where State law allows mutual ditch or irrigation companies to be organized with pro rata voting based on share ownership, this amendment specifies that subparagraph (A) should not consider whether shareholders have one vote per share on corporate governance matters.

(b) Effective Date: This subsection states that the amendment made by subsection (a) will apply to taxable years beginning after December 31, 2018.

The bill was passed by the House of Representatives on July 24, 2018.

Attest: Clerk.