[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1748 Introduced in House (IH)]

  1st Session
                                H. R. 1748

 To amend the Internal Revenue Code of 1986 to provide for farmers and 
closely held businesses a one-time exclusion of gain from certain sales 
or exchanges, for self-employed individuals a 100 percent deduction of 
health insurance costs, and for farmers a carryover of unused standard 
      deductions and personal exemptions, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              June 6, 1995

 Mr. Johnson of South Dakota introduced the following bill; which was 
              referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to provide for farmers and 
closely held businesses a one-time exclusion of gain from certain sales 
or exchanges, for self-employed individuals a 100 percent deduction of 
health insurance costs, and for farmers a carryover of unused standard 
      deductions and personal exemptions, and for other purposes.
    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Tax Fairness for Farmers, Ranchers, 
and Small Businesses Act''.

SEC. 2. ONE-TIME EXCLUSION OF GAIN FROM SALE OR EXCHANGE OF LAND USED 
              IN TRADE OR BUSINESS OF FARMING OR SALE OR EXCHANGE OF 
              CLOSELY HELD BUSINESS.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by inserting after section 121 the 
following new section:

``SEC. 121A. ONE-TIME EXCLUSION OF GAIN FROM SALE OR EXCHANGE OF LAND 
              USED IN TRADE OR BUSINESS OF FARMING OR SALE OR EXCHANGE 
              OF CLOSELY HELD BUSINESS.

    ``(a) In General.--At the election of the taxpayer, gross income 
does not include gain from the sale or exchange of a qualified property 
if--
            ``(1) the taxpayer has attained age 55 as of the close of 
        the taxable year,
            ``(2) the taxpayer or a member of the taxpayer's family has 
        been actively engaged, throughout the 10-year period ending on 
        the date of the sale or exchange, in the trade or business to 
        which the qualified property relates, and
            ``(3) the individual acquiring the qualified property is a 
        qualified buyer.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--The amount excluded from gross 
        income under subsection (a) shall not exceed $500,000 ($250,000 
        in the case of a separate return of a married individual).
            ``(2) Application to only 1 sale or exchange.--Subsection 
        (a) shall not apply to any sale or exchange by the taxpayer if 
        an election by the taxpayer or the taxpayer's spouse is in 
        effect under subsection (a) with respect to any other sale or 
        exchange.
    ``(c) Election.--An election under subsection (a) may be made or 
revoked at any time before the expiration of the period for making a 
claim for credit or refund of the tax imposed by this chapter for the 
taxable year in which the sale or exchange referred to in subsection 
(a) occurs, and shall be made or revoked in such manner as the 
Secretary shall by regulations prescribe. In the case of a taxpayer who 
is married, an election under subsection (a) or a revocation thereof 
may be made only if his spouse joins in such election or revocation.
    ``(d) Recapture of Tax Benefit in Case of Early Cessation of 
Farming or Business Participation.--
            ``(1) In general.--If, at any time during the 10-year 
        period beginning on the date of the sale or exchange referred 
        to in subsection (a), the qualified buyer fails to actively 
        engage in the trade or business to which the qualified property 
        relates, then the taxpayer's tax under this chapter for the 
        taxable year in which such failure begins shall be increased by 
        the recapture amount.
            ``(2) Exceptions.--
                    ``(A) Bankruptcy.--Paragraph (1) shall not apply to 
                any failure that begins while the qualified buyer is a 
                debtor in a case under title 11, United States Code 
                (relating to bankruptcy), if such case is commenced 
                after the date of the sale or exchange referred to in 
                subsection (a) and a discharge of indebtedness is 
                granted under such title in such case.
                    ``(B) Failure to reduce net tax.--Paragraph (1) 
                shall not apply to the extent that the exclusion under 
                subsection (a) did not reduce the net income tax of the 
                taxpayer for the taxable year to which the exclusion 
                applied.
            ``(3) Recapture amount.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `recapture amount' means the sum of--
                            ``(i) the applicable percentage of the 
                        excess of--
                                    ``(I) the amount which would (but 
                                for subsection (a)) have been the 
                                taxpayer's net income tax for the 
                                taxable year in which the sale or 
                                exchange referred to in subsection (a) 
                                occurred, over
                                    ``(II) the taxpayer's net income 
                                tax for such taxable year, plus
                            ``(ii) interest on the applicable 
                        percentage of such excess at the overpayment 
                        rate established under section 6621, for the 
                        period beginning on the due date for filing the 
                        return for the taxable year referred to in 
                        clause (i) and ending on the date on which the 
                        recapture amount is paid.
                No deduction shall be allowed under this chapter for 
                interest described in clause (ii).
                    ``(B) Applicable percentage.--For purposes of this 
                paragraph, the term `applicable percentage' means 100 
                percent reduced (but not below zero) by the product 
                of--
                            ``(i) 10 percentage points, and
                            ``(ii) the number of years (if any) 
                        occurring within the period beginning on the 
                        date of the sale or exchange referred to in 
                        subsection (a) and ending on the earliest 
                        subsequent date on which the qualified buyer 
                        fails to actively engage in the trade or 
                        business to which the qualified property 
                        relates.
            ``(4) Statute of limitations extended.--The statutory 
        period for the assessment of an increase in tax under paragraph 
        (1) shall not expire before the close of the 3-year period 
        beginning on the date that the taxpayer certifies to the 
        Secretary that no increase applies to the taxpayer under such 
        subsection. Such increase may be assessed before the expiration 
        of such 3-year period notwithstanding the provisions of any law 
        or rule of law which would otherwise prevent such assessment.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Member of family.--The term `member of the family' 
        has the meaning given such term by section 2032A(e)(2).
            ``(2) Net income tax.--The term `net income tax' has the 
        meaning given such term in section 38(c)(1).
            ``(3) Qualified buyer.--The term `qualified buyer' means--
                    ``(A) with respect to qualified property described 
                in paragraph (4)(A)--
                            ``(i) a qualified beginning farmer or 
                        rancher (as defined in section 343(a)(11) of 
                        the Consolidated Farm and Rural Development Act 
                        (7 U.S.C. 1991(a)(11)), or
                            ``(ii) a lineal descendant of the taxpayer 
                        who, at the time of the sale or exchange 
                        referred to in subsection (a), meets the 
                        requirements of section 343(a)(11)(D)(ii)(I) of 
                        such Act, or
                    ``(B) with respect to qualified property described 
                in paragraph (4)(B), a lineal descendant of the 
                taxpayer.
            ``(4) Qualified property.--The term `qualified property' 
        means--
                    ``(A) land, including improvements on such land, 
                used in the trade or business of farming (within the 
                meaning of section 2032A(e)(4) or (5)), or
                    ``(B) any interest in a closely held business (as 
                defined in section 6166(b)(1)).
    ``(f) Special rules.--For purposes of this section--
            ``(1) Actively engaged in trade or business of farming.--An 
        individual shall be treated as actively engaged in the trade or 
        business of farming (within the meaning of section 2032A(e)(4) 
        or (5)) if such individual would not be treated as a limited 
        partner or limited entrepreneur under subparagraphs (A) through 
        (D) of section 464(c)(2).
            ``(2) Additional rules.--Rules similar to the rules of 
        paragraphs (1), (2), (4), (6), (7), and (8) of section 121(d) 
        (relating to one-time exclusion of gain from sale of principal 
        residence by individual who has attained age 55) shall apply.''
    (b) Clerical Amendment.--The table of sections for such part III is 
amended by inserting after the item relating to section 121 the 
following new item:

                              ``Sec. 121A. One-time exclusion of gain 
                                        from sale or exchange of land 
                                        used in trade or business of 
                                        farming or sale or exchange of 
                                        closely held business.''
    (c) Effective Date.--The amendments made by this section shall 
apply to sales and exchanges occurring after the date of the enactment 
of this Act in taxable years ending after such date.

SEC. 3. 100 PERCENT DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
              EMPLOYED INDIVIDUALS.

    (a) Increase in Amount of Deduction.--Paragraph (1) of section 
162(l) of the Internal Revenue Code of 1986 is amended by striking ``30 
percent of''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1994.

SEC. 4. CARRYOVER OF UNUSED STANDARD DEDUCTION AND PERSONAL EXEMPTION 
              FOR FARMERS.

    (a) In General.--Subsection (d) of section 172 of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
paragraph:
            ``(7) Farmers allowed carryover of unused personal 
        exemption and standard deduction.--
                    ``(A) In general.--In the case of a qualified 
                farmer, paragraphs (3) and (4) shall not apply with 
                respect to any personal exemption allowed under section 
                151 or any standard deduction (as defined in section 
                63(c)).
                    ``(B) Qualified farmer.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `qualified 
                        farmer' means an individual--
                                    ``(I) who is actively engaged in 
                                the trade or business of farming 
                                (within the meaning of section 2032A(e) 
                                (4) or (5)), and
                                    ``(II) 50 percent or more of the 
                                average annual gross income of whom for 
                                the 3 preceding taxable years is 
                                attributable to such trade or business.
                            ``(ii) Actively engaged.--A taxpayer shall 
                        be treated as actively engaged in the trade or 
                        business of farming only if the taxpayer is 
                        involved in the operation of such trade or 
                        business on a regular, continuous, and 
                        substantial basis.''
    (b) Effective Date.--The amendment made by this section shall apply 
to deductions allowable under sections 63 and 151 for taxable years 
ending after the date of the enactment of this Act.

SEC. 5. POSSESSIONS TAX CREDIT

    (a) In General.--Section 936 of the Internal Revenue Code of 1986 
(relating to Puerto Rico and possession tax credit) is hereby repealed.
    (b) Clerical Amendment.--The table of sections for subpart D of 
part III of subchapter N of chapter 1 of such Code is amended by 
striking the item relating to section 936.
    (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 5. REVISION OF TAX RULES ON EXPATRIATION.

    (a) In General.--Subpart A of part II of subchapter N of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 877 the following new section:

``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

    ``(a) General Rule.--For purposes of this subtitle, if any United 
States citizen relinquishes his citizenship during a taxable year--
            ``(1) except as provided in subsection (f)(2), all property 
        held by such citizen at the time immediately before such 
        relinquishment shall be treated as sold at such time for its 
        fair market value, and
            ``(2) notwithstanding any other provision of this title, 
        any gain or loss shall be taken into account for such taxable 
        year.
Paragraph (2) shall not apply to amounts excluded from gross income 
under part III of subchapter B.
    ``(b) Exclusion for Certain Gain.--The amount which would (but for 
this subsection) be includible in the gross income of any individual by 
reason of subsection (a) shall be reduced (but not below zero) by 
$600,000.
    ``(c) Property Treated as Held.--For purposes of this section, 
except as otherwise provided by the Secretary, an individual shall be 
treated as holding--
            ``(1) all property which would be includible in his gross 
        estate under chapter 11 were such individual to die at the time 
        the property is treated as sold,
            ``(2) any other interest in a trust which the individual is 
        treated as holding under the rules of subsection (f)(1), and
            ``(3) any other interest in property specified by the 
        Secretary as necessary or appropriate to carry out the purposes 
        of this section.
    ``(d) Exceptions.--The following property shall not be treated as 
sold for purposes of this section:
            ``(1) United states real property interests.--Any United 
        States real property interest (as defined in section 
        897(c)(1)), other than stock of a United States real property 
        holding corporation which does not, on the date the individual 
        relinquishes his citizenship, meet the requirements of section 
        897(c)(2).
            ``(2) Interest in certain retirement plans.--
                    ``(A) In general.--Any interest in a qualified 
                retirement plan (as defined in section 4974(c)), other 
                than any interest attributable to contributions which 
                are in excess of any limitation or which violate any 
                condition for taxfavored treatment.
                    ``(B) Foreign pension plans.--
                            ``(i) In general.--Under regulations 
                        prescribed by the Secretary, interests in 
                        foreign pension plans or similar retirement 
                        arrangements or programs.
                            ``(ii) Limitation.--The value of property 
                        which is treated as not sold by reason of this 
                        subparagraph shall not exceed $500,000.
    ``(e) Relinquishment of Citizenship.--For purposes of this section, 
a citizen shall be treated as relinquishing his United States 
citizenship on the earliest of--
            ``(1) the date the individual renounces his United States 
        nationality before a diplomatic or consular officer of the 
        United States pursuant to paragraph (5) of section 349(a) of 
        the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
            ``(2) the date the individual furnishes to the United 
        States Department of State a signed statement of voluntary 
        relinquishment of United States nationality confirming the 
        performance of an act of expatriation specified in paragraph 
        (1), (2), (3), or (4) of section 349(a) of the Immigration and 
        Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
            ``(3) the date the United States Department of State issues 
        to the individual a certificate of loss of nationality, or
            ``(4) the date a court of the United States cancels a 
        naturalized citizen's certificate of naturalization.
Paragraph (1) or (2) shall not apply to any individual unless the 
renunciation or voluntary relinquishment is subsequently approved by 
the issuance to the individual of a certificate of loss of nationality 
by the United States Department of State.
    ``(f) Special Rules Applicable to Beneficiaries' Interests in 
Trust.--
            ``(1) Determination of beneficiaries' interest in trust.--
        For purposes of this section--
                    ``(A) General rule.--A beneficiary's interest in a 
                trust shall be based upon all relevant facts and 
                circumstances, including the terms of the trust 
                instrument and any letter of wishes or similar 
                document, historical patterns of trust distributions, 
                and the existence of and functions performed by a trust 
                protector or any similar advisor.
                    ``(B) Special rule.--In the case of beneficiaries 
                whose interests in a trust cannot be determined under 
                subparagraph (A)--
                            ``(i) the beneficiary having the closest 
                        degree of kinship to the grantor shall be 
                        treated as holding the remaining interests in 
                        the trust not determined under subparagraph (A) 
                        to be held by any other beneficiary, and
                            ``(ii) if 2 or more beneficiaries have the 
                        same degree of kinship to the grantor, such 
                        remaining interests shall be treated as held 
                        equally by such beneficiaries.
                    ``(C) Constructive ownership.--If a beneficiary of 
                a trust is a corporation, partnership, trust, or 
                estate, the shareholders, partners, or beneficiaries 
                shall be deemed to be the trust beneficiaries for 
                purposes of this section.
                    ``(D) Taxpayer return position.--A taxpayer shall 
                clearly indicate on its income tax return--
                            ``(i) the methodology used to determine 
                        that taxpayer's trust interest under this 
                        section, and
                            ``(ii) if the taxpayer knows (or has reason 
                        to know) that any other beneficiary of such 
                        trust is using a different methodology to 
                        determine such beneficiary's trust interest 
                        under this section.
            ``(2) Deemed sale in case of trust interest.--If an 
        individual who relinquishes his citizenship during the taxable 
        year is treated under paragraph (1) as holding an interest in a 
        trust for purposes of this section--
                    ``(A) the individual shall not be treated as having 
                sold such interest,
                    ``(B) such interest shall be treated as a separate 
                share in the trust, and
                    ``(C)(i) such separate share shall be treated as a 
                separate trust consisting of the assets allocable to 
                such share,
                    ``(ii) the separate trust shall be treated as 
                having sold its assets immediately before the 
                relinquishment for their fair market value and as 
                having distributed all of its assets to the individual 
                as of such time, and
                    ``(iii) the individual shall be treated as having 
                recontributed the assets to the separate trust.
        Subsection (a)(2) shall apply to any income, gain, or loss of 
        the individual arising from a distribution described in 
        subparagraph (B)(ii).
    ``(g) Termination of Deferrals, Etc.--On the date any property held 
by an individual is treated as sold under subsection (a), 
notwithstanding any other provision of this title--
            ``(1) any period during which recognition of income or gain 
        is deferred shall terminate, and
            ``(2) any extension of time for payment of tax shall cease 
        to apply and the unpaid portion of such tax shall be due and 
        payable at the time and in the manner prescribed by the 
        Secretary.
    ``(h) Rules Relating to Payment of Tax.--
            ``(1) Imposition of tentative tax.--
                    ``(A) In general.--If an individual is required to 
                include any amount in gross income under subsection (a) 
                for any taxable year, there is hereby imposed, 
                immediately before the individual relinquishes United 
                States citizenship, a tax in an amount equal to the 
                amount of tax which would be imposed if the taxable 
                year were a short taxable year ending on the date of 
                such relinquishment.
                    ``(B) Due date.--The due date for any tax imposed 
                by subparagraph (A) shall be the 90th day after the 
                date the individual relinquishes United States 
                citizenship.
                    ``(C) Treatment of tax.--Any tax paid under 
                subparagraph (A) shall be treated as a payment of the 
                tax imposed by this chapter for the taxable year to 
                which subsection (a) applies.
            ``(2) Deferral of tax.--The provisions of section 6161 
        shall apply to the portion of any tax attributable to amounts 
        included in gross income under subsection (a) in the same 
        manner as if such portion were a tax imposed by chapter 11.
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulations providing appropriate adjustments to 
basis to reflect gain recognized by reason of subsection (a) and the 
exclusion provided by subsection (b).
    ``(j) Cross Reference.--

                                ``For termination of United States 
citizenship for tax purposes, see section 7701(a)(47).''
    (b) Definition of Termination of United States Citizenship.--
Section 7701(a) of the Internal Revenue Code of 1986 is amended by 
adding at the end the following new paragraph:
            ``(47) Termination of united states citizenship.--An 
        individual shall not cease to be treated as a United States 
        citizen before the date on which the individual's citizenship 
        is treated as relinquished under section 877A(e).''
    (c) Conforming Amendment.--Section 877 of the Internal Revenue Code 
of 1986 is amended by adding at the end the following new subsection:
    ``(f) Application.--This section shall not apply to any individual 
who relinquishes (within the meaning of section 877A(e)) United States 
citizenship on and after the date of the enactment of this 
subsection.''
    (d) Clerical Amendment.--The table of sections for subpart A of 
part II of subchapter N of chapter 1 of the Internal Revenue Code of 
1986 is amended by inserting after the item relating to section 877 the 
following new item:

                              ``Sec. 877A. Tax responsibilities of 
                                        expatriation.''
    (e) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to United States citizens who relinquish (within the 
        meaning of section 877A(e) of the Internal Revenue Code of 
        1986, as added by this section) United States citizenship on or 
        after the date of the enactment of this Act.
            (2) Due date for tentative tax.--The due date under section 
        877A(h)(1)(B) of such Code shall in no event occur before the 
        90th day after the date of the enactment of this Act.
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HR 1748 IH----2