S. 1874 – Water and Agriculture Tax Reform Act of 2023

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Updated January 20, 2026 at 8:38 AM UTC

The bill amends the Internal Revenue Code to change how mutual ditch irrigation companies and similar water organizations treat income from water leasing, sales, and related investments for tax purposes. It excludes that income from being counted as member income unless it is used for non‑operational expenses, and it clarifies that voting rights based on share ownership do not affect the tax treatment. These changes aim to promote water leasing and transfers to improve conservation and efficiency and apply to taxable years beginning after enactment.

Key Provisions

Adds a new subparagraph (K) to section 501(c) specifically for mutual ditch irrigation companies and similar organizations.
Excludes income from the sale, lease, or exchange of water interests and from stock or contract rights from member income calculations.
Excludes investment income earned from those sources, unless it is distributed for non‑operational expenses, which are then treated as non‑member income.
Defines non‑operational expenses to include costs for constructing conveyances that deliver water outside the company’s system.
Allows companies organized under state law to have voting rights proportional to share ownership without affecting the tax treatment.

Legislative Activity

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1 earlier action

SenateIntro Referral Latest Action

Read twice and referred to the Committee on Finance.

Finance Committee

June 8, 2023

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SenateIntro Referral

Introduced in Senate

June 8, 2023

SenateIntro Referral

Read twice and referred to the Committee on Finance.

Finance Committee

June 8, 2023

Bill Text

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Introduced in SenateIssued June 8, 2023

II

118th CONGRESS

1st Session

S. 1874

IN THE SENATE OF THE UNITED STATES

June 8, 2023

Mr. Crapo (for himself, Mr. Bennet, Mr. Risch, Ms. Lummis, Mr. Daines, and Mr. Barrasso) 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 facilitate water leasing and water transfers to promote conservation and efficiency.

1.

Short title

This Act may be cited as the Water and Agriculture Tax Reform Act of 2023.

2.

Facilitate water leasing and water transfers to promote conservation and efficiency

(a)

In general

Paragraph (12) of section 501(c) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:

(K)

Treatment of mutual ditch irrigation companies

(i)

In general

In the case of a mutual ditch or irrigation company or of a like organization to a mutual ditch or irrigation company, subparagraph (A) shall be applied without taking into account—

(I)

any income received or accrued from the sale, lease, or exchange of fee or other interests in real and personal property, including interests in water,

(II)

any income received or accrued from the sale or exchange of stock in a mutual ditch or irrigation company (or in a like organization to a mutual ditch or irrigation company) or contract rights for the delivery or use of water, or

(III)

any income received or accrued from the investment of income described in subclause (I) or (II),

except that any income described in subclause (I), (II), or (III) which is distributed or expended for expenses (other than for operations, maintenance, and capital improvements) of the mutual ditch or irrigation company or of the like organization to a mutual ditch or irrigation company (as the case may be) shall be treated as nonmember income in the year in which it is distributed or expended. For purposes of the preceding sentence, expenses (other than for operations, maintenance, and capital improvements) include expenses for the construction of conveyances designed to deliver water outside of the system of the mutual ditch or irrigation company or of the like organization.

(ii)

Treatment of organizational governance

In the case of a mutual ditch or irrigation company or of a like organization to a mutual ditch or irrigation company, where State law provides that such a company or organization may be organized in a manner that permits voting on a basis which is pro rata to share ownership on corporate governance matters, subparagraph (A) shall be applied without taking into account whether its member shareholders have one vote on corporate governance matters per share held in the corporation. Nothing in this clause shall be construed to create any inference about the requirements of this subsection for companies or organizations not included in this clause.

.

(b)

Effective date

The amendment made by subsection (a) shall apply to taxable years beginning after the date of the enactment of this Act.