[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 161 Introduced in Senate (IS)]







104th CONGRESS
  1st Session
                                 S. 161

To amend the Internal Revenue Code of 1986 to reduce the rate of estate 
            tax imposed on family-owned business interests.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            January 5, 1995

  Mrs. Murray 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 reduce the rate of estate 
            tax imposed on family-owned business interests.

    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 ``American Family Business 
Preservation Act''.

SEC. 2. REDUCED ESTATE TAX RATE ON FAMILY-OWNED BUSINESS INTERESTS.

    (a) In General.--Part I of subchapter A of chapter 11 of the 
Internal Revenue Code of 1986 (relating to tax imposed) is amended by 
adding at the end the following new section:

``SEC. 2003. REDUCED RATE ON FAMILY-OWNED BUSINESS INTERESTS.

    ``(a) In General.--In the case of an estate of a decedent to which 
this section applies, the tax imposed by section 2001 shall not exceed 
the sum of--
            ``(1) a tax computed at the rates and in the manner as if 
        this section had not been enacted on the greater of--
                    ``(A) the sum described in section 2001(c)(1) 
                reduced by the qualified family-owned business 
                interests, or
                    ``(B) the sum (if any) described in section 
                2001(c)(1) taxed at a rate below the applicable rate, 
                plus
            ``(2) a tax equal to the applicable rate of the portion of 
        the taxable estate in excess of the amount determined under 
        paragraph (1).
    ``(b) Estates to Which Section Applies.--This section shall apply 
to an estate if--
            ``(1) the decedent was (at the date of his or her death) a 
        citizen of the United States,
            ``(2) the sum of--
                    ``(A) the value of the qualified family-owned 
                business interests which are included in determining 
                the gross estate and which are acquired from or passed 
                from the decedent to a qualified heir of the decedent, 
                and
                    ``(B) the amount (taken into account under 
                subsection 2001(b)(1)(B)) of the adjusted taxable gifts 
                of such interests to members of the decedent's family,
        exceeds 50 percent of the adjusted gross estate, and
            ``(3) during the 8-year period ending on the date of the 
        decedent's death there have been periods aggregating 5 years or 
        more during which--
                    ``(A) such interests were owned by the decedent or 
                a member of the decedent's family, and
                    ``(B) there was material participation by the 
                decedent or a member of the decedent's family in the 
                operation of the business to which such interests 
                relate.
    ``(c) Applicable Rate.--For purposes of this section, the 
applicable rate is--
            ``(1) 15 percent if the requirement of subsection (b)(3)(B) 
        is met by a member of the decedent's family, and
            ``(2) 20 percent in any other case.
    ``(d) Qualified Family-Owned Business Interest.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified family-owned business interest' means--
                    ``(A) an interest as a proprietor in a trade or 
                business carried on as a proprietorship;
                    ``(B) an interest as a partner in a partnership 
                carrying on a trade or business, if such partnership 
                had 15 or fewer partners; or
                    ``(C) stock in a corporation carrying on a trade or 
                business if such corporation had not more than the 
                number of shareholders specified in section 
                1361(b)(1)(A).
        Such term shall not include any interest which is readily 
        tradable on an established securities market or otherwise.
            ``(2) Rules for applying paragraph (1).--For purposes of 
        paragraph (1), rules similar to the rules of paragraphs (2), 
        (3), (4), and (6) of section 6166(b) shall apply.
    ``(e) Recapture of Tax Benefit if Interests Not Held for 10 
Years.--
            ``(1) In general.--If--
                    ``(A) during the 10-year period beginning on the 
                date of death of the decedent--
                            ``(i)(I) any portion of a qualified family-
                        owned business interest is distributed, sold, 
                        exchanged, or otherwise disposed of, or
                            ``(II) money and other property 
                        attributable to such an interest is withdrawn 
                        from such trade or business, and
                    ``(B) the aggregate of such distributions, sales, 
                exchanges, or other dispositions and withdrawals equals 
                or exceeds 20 percent of the value of such interest, or
        there is hereby imposed an additional estate tax.
            ``(2) Additional estate tax.--
                    ``(A) In general.--The amount of the additional 
                estate tax imposed by paragraph (1) shall be the 
                applicable percentage of the excess of what would have 
                been the estate tax liability but for subsection (a) 
                over the adjusted estate tax liability.
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), 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) after 
                        the date of the decedent's death which the year 
                        during which the additional estate tax is 
                        imposed by paragraph (1) is after the 1st year 
                        after the date of the decedent's death.
                    ``(C) Adjusted estate tax liability.--For purposes 
                of subparagraph (A), the term `adjusted estate tax 
                liability' means the estate tax liability increased by 
                the amount (if any) of any prior additional estate tax 
                imposed by subsection (f).
                    ``(D) Estate tax liability.--For purposes of this 
                paragraph, the term `estate tax liability' means the 
                tax imposed by section 2001 reduced by the credits 
                allowable against such tax.
            ``(3) Certain rules to apply.--For purposes of this 
        subsection, rules similar to the rules of subparagraphs (B), 
        (C), and (D) of section 6166(g)(1) shall apply.
    ``(f) Recapture of Portion of Tax Benefit if Heirs Cease to 
Materially Participate During 10 Years After Death.--
            ``(1) In general.--If--
                    ``(A) the applicable rate which applied under 
                subsection (a) to the estate of the decedent was 15 
                percent,
                    ``(B) at any time during the 10-year period 
                beginning on the date of death of the decedent, no 
                qualified heir materially participates in the operation 
                of the business to which the qualified family-owned 
                business interests relate, and
                    ``(C) there is no recapture under subsection (e) on 
                or before the earliest date during such 10-year period 
                that no qualified heir so materially participated,
        there is hereby imposed an additional estate tax.
            ``(2) Additional estate tax.--The amount of the additional 
        estate tax imposed by paragraph (1) shall be the applicable 
        percentage of the excess of what would have been the estate tax 
        liability but for subsection (c)(1) over the estate tax 
        liability.
            ``(3) Definitions.--For purposes of paragraph (2), the 
        terms `applicable percentage' and `estate tax liability' have 
        the meanings given to such terms by subsection (e).
    ``(g) Other Definitions.--For purposes of this section, the terms 
`qualified heir' and `member of the family' have the meanings given to 
such terms by section 2032A(e).''
    (b) Clerical Amendment.--The table of sections for part I of 
subchapter A of chapter 11 of such Code is amended by adding at the end 
the following new item:

                              ``Sec. 2003. Reduced rate on family-owned 
                                        business interests.''
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after the date of the enactment of 
this section.

SEC. 3. LIMITATION ON 4 PERCENT RATE OF INTEREST ON ESTATE TAX EXTENDED 
              UNDER SECTION 6166 NOT TO APPLY TO ESTATE TAX 
              ATTRIBUTABLE TO QUALIFIED FAMILY-OWNED BUSINESS 
              INTERESTS.

    (a) In General.--Paragraph (2) of section 6601(j) of the Internal 
Revenue Code of 1986 (relating to 4-percent portion) is amended by 
adding at the end the following new flush sentence:
        ``Subparagraph (B) shall not take into account the amount of 
        the tax imposed by chapter 11 which is attributable to 
        qualified family-owned business interests (as defined in 
        section 2003(b)) unless an election is in effect under section 
        2032A with respect to the estate.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after the date of the enactment of this 
section.

SEC. 4. EXTENSION OF ALTERNATE VALUATION DATE TO 40 MONTHS WITH RESPECT 
              TO ESTATE CONSISTING LARGELY OF QUALIFIED FAMILY-OWNED 
              BUSINESS INTERESTS.

    (a) In General.--Section 2032 of the Internal Revenue Code of 1986 
(relating to alternate valuation) is amended by redesignating 
subsections (c) and (d) as subsections (d) and (e), respectively, and 
by inserting after subsection (b) the following new subsection:
    ``(c) Estates Largely Consisting of Qualified Family-Owned Business 
Interests.--In the case of an estate to which section 2003 applies--
            ``(1) subsection (a) shall be applied by substituting `40 
        months' for `6 months' each place it appears, and
            ``(2) section 6075(a) (relating to time for filing estate 
        tax return) shall be applied by substituting `43 months' for `9 
        months'.''
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after the date of the enactment of this 
section.

SEC. 5. INCREASE IN GIFT TAX EXCLUSION.

    (a) In General.--Subsection (b) of section 2503 of the Internal 
Revenue Code of 1986 (relating to taxable gifts) is amended by adding 
at the end the following new sentence: ``In the case of gifts made 
during a calendar year by a donor to ancestors or lineal descendents of 
the donor, the aggregate amount of such gifts which are not included in 
the total amount of gifts by reason of this subsection shall not be 
less than 15 percent of the donor's earned income (as defined in 
section 32(c)(2)) for the taxable year ending with or within such 
calendar year.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to gifts made in calendar years beginning after the date of the 
enactment of this section.

SEC. 6. INCREASE IN UNIFIED ESTATE AND GIFT TAX CREDITS.

    (a) Estate Tax Credit.--
            (1) Subsection (a) of section 2010 of the Internal Revenue 
        Code of 1986 (relating to unified credit against estate tax) is 
        amended by striking ``$192,800'' and inserting ``the applicable 
        credit amount''.
            (2) Section 2010 of such Code is amended by redesignating 
        subsection (c) as subsection (d) and by inserting after 
        subsection (b) the following new subsection:
    ``(c) Applicable Credit Amount.--For purposes of this section--
            ``(1) In general.--The applicable credit amount is the 
        amount of the tentative tax which would be determined under the 
        rate schedule set forth in section 2001(c) if the amount with 
        respect to which such tentative tax is to be computed were 
        $600,000.
            ``(2) Cost-of-living adjustments.--In the case of any 
        decedent dying in a calendar year after December 31, 1995, the 
        $600,000 amount set forth in paragraph (1) shall be increased 
        by an amount equal to--
                    ``(A) $600,000, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for such calendar year by 
                substituting `calendar year 1996' for `calendar year 
                1992' in subparagraph (B) thereof.
        Any increase determined under the preceding sentence shall be 
        rounded to the nearest multiple of $1,000.''
            (3) Paragraph (1) of section 6018(a) of such Code is 
        amended by striking ``$600,000'' and inserting ``$600,000 
        (adjusted as provided in section 2010(c)(2)''.
    (b) Unified Gift Tax Credit.--Paragraph (1) of section 2505(a) of 
such Code is amended by striking ``$192,800'' and inserting ``the 
applicable credit amount in effect under section 2010(c) for such 
calendar year''.
    (c) Effective Date.--The amendments made by this section shall 
apply to the estates of decedents dying, and gifts made, after December 
31, 1995.
                                 <all>