Tax Empowerment and Relief for Farmers and Fishermen (TERFF) Act

Amends the IRC and title II (Old Age, Survivors and Disability Insurance) of the Social Security Act to exclude net earnings from a lease agreement (currently, an arrangement) from income with respect to farmland.

Treats conservation reserve program payments as real estate rentals for self-employment earnings purposes.

Exempt certain small issue agriculture bonds from the State volume cap.

Sets forth a rule for determining the amount of the deduction allowable for a charitable contribution of food inventory.

Extends income averaging to income from the trade or business of catching, taking, or harvesting fish intended to enter commerce through sale, barter, or trade. Disregards income averaging for farmers and commercial fishermen in computing the regular alternative minimum tax.

Declares, with respect to the treatment of S corporations and to the tax exemption for farmers' cooperatives, that cooperative marketing includes the value-added processing of the products of cooperative members and other producers through animals that is by: (1) feeding such products to cattle, hogs, fish, chickens, or other animals; and then (2) selling the resulting animals or animal products.

Authorizes a U.S. district court to issue a declaratory judgment relating to the initial or continuing qualification of a farmers' cooperative as tax-exempt.

Provides, with respect to the small ethanol producer credit, for: (1) authorizing credit allocation among a cooperative's patrons; (2) increasing the gallon capacity for eligible producers; (3) making the credit a non-passive income credit; and (4) removing the credit from the alcohol fuel credit gross income inclusion.