[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1380 Introduced in House (IH)]







105th CONGRESS
  1st Session
                                H. R. 1380

 To amend the Internal Revenue Code of 1986 to reduce estate taxes on 
   family-owned farm businesses and to exclude gain from the sale or 
 exchange of a farming business to the extent of the medical expenses 
                         paid by the taxpayer.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 17, 1997

  Mr. Hoyer 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 reduce estate taxes on 
   family-owned farm businesses and to exclude gain from the sale or 
 exchange of a farming business to the extent of the medical expenses 
                         paid by the taxpayer.

    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 ``Farmer Estate Tax Relief Act of 
1997''.

SEC. 2. FAMILY-OWNED FARM EXCLUSION.

    (a) In General.--Part III of subchapter A of chapter 11 of the 
Internal Revenue Code of 1986 (relating to gross estate) is amended by 
inserting after section 2032A the following new section:

``SEC. 2032B. FAMILY-OWNED FARM EXCLUSION.

    ``(a) In General.--In the case of an estate of a decedent to which 
this section applies, the value of the gross estate shall not include 
the lesser of--
            ``(1) the adjusted value of the qualified family-owned farm 
        interests of the decedent otherwise includible in the estate, 
        or
            ``(2) $1,400,000.
    ``(b) Estates to Which Section Applies.--
            ``(1) In general.--This section shall apply to an estate 
        if--
                    ``(A) the decedent was (at the date of the 
                decedent's death) a citizen or resident of the United 
                States,
                    ``(B) the sum of--
                            ``(i) the adjusted value of the qualified 
                        family-owned farm interests described in 
                        paragraph (2), plus
                            ``(ii) the amount of the gifts of such 
                        interests determined under paragraph (3),
                exceeds 50 percent of the adjusted gross estate, and
                    ``(C) 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--
                            ``(i) such interests were owned by the 
                        decedent or a member of the decedent's family, 
                        and
                            ``(ii) there was material participation 
                        (within the meaning of section 2032A(e)(6)) by 
                        the decedent or a member of the decedent's 
                        family in the operation of the farm to which 
                        such interests relate.
            ``(2) Includible qualified family-owned farm interests.--
        The qualified family-owned farm interests described in this 
        paragraph are the interests which--
                    ``(A) are included in determining the value of the 
                gross estate (without regard to this section), and
                    ``(B) are acquired by any qualified heir from, or 
                passed to any qualified heir from, the decedent (within 
                the meaning of section 2032A(e)(9)).
            ``(3) Includible gifts of interests.--The amount of the 
        gifts of qualified family-owned farm interests determined under 
        this paragraph is the excess of--
                    ``(A) the sum of--
                            ``(i) the amount of such gifts from the 
                        decedent to members of the decedent's family 
                        taken into account under section 2001(b)(1)(B), 
                        plus
                            ``(ii) the amount of such gifts otherwise 
                        excluded under section 2503(b),
                to the extent such interests are continuously held by 
                members of such family (other than the decedent's 
                spouse) between the date of the gift and the date of 
                the decedent's death, over
                    ``(B) the amount of such gifts from the decedent to 
                members of the decedent's family otherwise included in 
                the gross estate.
    ``(c) Adjusted Gross Estate.--For purposes of this section, the 
term `adjusted gross estate' means the value of the gross estate 
(determined without regard to this section)--
            ``(1) reduced by any amount deductible under paragraph (3) 
        or (4) of section 2053(a), and
            ``(2) increased by the excess of--
                    ``(A) the sum of--
                            ``(i) the amount of gifts determined under 
                        subsection (b)(3), plus
                            ``(ii) the amount (if more than de minimis) 
                        of other transfers from the decedent to the 
                        decedent's spouse (at the time of the transfer) 
                        within 10 years of the date of the decedent's 
                        death, plus
                            ``(iii) the amount of other gifts (not 
                        included under clause (i) or (ii)) from the 
                        decedent within 3 years of such date, other 
                        than gifts to members of the decedent's family 
                        otherwise excluded under section 2503(b), over
                    ``(B) the sum of the amounts described in clauses 
                (i), (ii), and (iii) of subparagraph (A) which are 
                otherwise includible in the gross estate.
For purposes of the preceding sentence, the Secretary may provide that 
de minimis gifts to persons other than members of the decedent's family 
shall not be taken into account.
    ``(d) Adjusted Value of the Qualified Family-Owned Farm 
Interests.--For purposes of this section, the adjusted value of any 
qualified family-owned farm interest is the value of such interest for 
purposes of this chapter (determined without regard to this section), 
reduced by the excess of--
            ``(1) any amount deductible under paragraph (3) or (4) of 
        section 2053(a), over
            ``(2) the sum of--
                    ``(A) any indebtedness on any qualified residence 
                of the decedent the interest on which is deductible 
                under section 163(h)(3), plus
                    ``(B) any indebtedness to the extent the taxpayer 
                establishes that the proceeds of such indebtedness were 
                used for the payment of educational and medical 
                expenses of the decedent, the decedent's spouse, or the 
                decedent's dependents (within the meaning of section 
                152), plus
                    ``(C) any indebtedness not described in 
                subparagraph (A) or (B), to the extent such 
                indebtedness does not exceed $10,000.
    ``(e) Qualified Family-Owned Farm Interest.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified family-owned farm interest' means--
                    ``(A) an interest as a proprietor in a farming 
                trade or business carried on as a proprietorship, or
                    ``(B) an interest in an entity carrying on a 
                farming trade or business, if--
                            ``(i) at least--
                                    ``(I) 50 percent of such entity is 
                                owned (directly or indirectly) by the 
                                decedent and members of the decedent's 
                                family,
                                    ``(II) 70 percent of such entity is 
                                so owned by members of 2 families, or
                                    ``(III) 90 percent of such entity 
                                is so owned by members of 3 families, 
                                and
                            ``(ii) for purposes of subclause (II) or 
                        (III) of clause (i), at least 30 percent of 
                        such entity is so owned by the decedent and 
                        members of the decedent's family.
            ``(2) Limitation.--Such term shall not include--
                    ``(A) any interest in a trade or business the 
                principal place of business of which is not located in 
                the United States,
                    ``(B) any interest in an entity, if the stock or 
                debt of such entity or a controlled group (as defined 
                in section 267(f)(1)) of which such entity was a member 
                was readily tradable on an established securities 
                market or secondary market (as defined by the 
                Secretary) at any time within 3 years of the date of 
                the decedent's death,
                    ``(C) any interest in a trade or business not 
                described in section 542(c)(2), if more than 35 percent 
                of the adjusted ordinary gross income of such trade or 
                business for the taxable year which includes the date 
                of the decedent's death would qualify as personal 
                holding company income (as defined in section 543(a)),
                    ``(D) that portion of an interest in a trade or 
                business that is attributable to--
                            ``(i) cash or marketable securities, or 
                        both, in excess of the reasonably expected day-
                        to-day working capital needs of such trade or 
                        business, and
                            ``(ii) any other assets of the trade or 
                        business (other than assets used in the active 
                        conduct of a trade or business described in 
                        section 542(c)(2)), the income of which is 
                        described in section 543(a) or in subparagraph 
                        (B), (C), (D), or (E) of section 954(c)(1) 
                        (determined by substituting `trade or business' 
for `controlled foreign corporation').
            ``(3) Rules regarding ownership.--
                    ``(A) Ownership of entities.--For purposes of 
                paragraph (1)(B)--
                            ``(i) Corporations.--Ownership of a 
                        corporation shall be determined by the holding 
                        of stock possessing the appropriate percentage 
                        of the total combined voting power of all 
                        classes of stock entitled to vote and the 
                        appropriate percentage of the total value of 
                        shares of all classes of stock.
                            ``(ii) Partnerships.--Ownership of a 
                        partnership shall be determined by the owning 
                        of the appropriate percentage of the capital 
                        interest in such partnership.
                    ``(B) Ownership of tiered entities.--For purposes 
                of this section, if by reason of holding an interest in 
                a trade or business, a decedent, any member of the 
                decedent's family, any qualified heir, or any member of 
                any qualified heir's family is treated as holding an 
                interest in any other trade or business--
                            ``(i) such ownership interest in the other 
                        trade or business shall be disregarded in 
                        determining if the ownership interest in the 
                        first trade or business is a qualified family-
                        owned farm interest, and
                            ``(ii) this section shall be applied 
                        separately in determining if such interest in 
                        any other trade or business is a qualified 
                        family-owned farm interest.
                    ``(C) Individual ownership rules.--For purposes of 
                this section, an interest owned, directly or 
                indirectly, by or for an entity described in paragraph 
                (1)(B) shall be considered as being owned 
                proportionately by or for the entity's shareholders, 
                partners, or beneficiaries. A person shall be treated 
                as a beneficiary of any trust only if such person has a 
                present interest in such trust.
    ``(f) Tax Treatment of Failure To Materially Participate in 
Business or Dispositions of Interests.--
            ``(1) In general.--There is imposed an additional estate 
        tax if, within 10 years after the date of the decedent's death 
        and before the date of the qualified heir's death--
                    ``(A) the material participation requirements 
                described in section 2032A(c)(6)(B) are not met with 
                respect to the qualified family-owned farm interest 
                which was acquired (or passed) from the decedent,
                    ``(B) the qualified heir disposes of any portion of 
                a qualified family-owned farm interest (other than by a 
                disposition to a member of the qualified heir's family 
                or through a qualified conservation contribution under 
                section 170(h)),
                    ``(C) the qualified heir loses United States 
                citizenship (within the meaning of section 877) or with 
                respect to whom an event described in subparagraph (A) 
                or (B) of section 877(e)(1) occurs, and such heir does 
                not comply with the requirements of subsection (g), or
                    ``(D) the principal place of business of a trade or 
                business of the qualified family-owned farm interest 
                ceases to be located in the United States.
            ``(2) Additional estate tax.--
                    ``(A) In general.--The amount of the additional 
                estate tax imposed by paragraph (1) shall be equal to--
                            ``(i) the applicable percentage of the 
                        adjusted tax difference attributable to the 
                        qualified family-owned farm interest (as 
                        determined under rules similar to the rules of 
                        section 2032A(c)(2)(B)), plus
                            ``(ii) interest on the amount determined 
                        under clause (i) at the underpayment rate 
                        established under section 6621 for the period 
                        beginning on the date the estate tax liability 
                        was due under this chapter and ending on the 
                        date such additional estate tax is due.
                    ``(B) Applicable percentage.--For purposes of this 
                paragraph, the applicable percentage shall be 
                determined under the following table:

``If the event described in                                            
  paragraph (1) occurs in                                              
  the following year of                                  The applicable
  material participation:                                percentage is:
    1 through 6...................................                 100 
    7.............................................                  80 
    8.............................................                  60 
    9.............................................                  40 
    10............................................                  20.
    ``(g) Security Requirements for Noncitizen Qualified Heirs.--
            ``(1) In general.--Except upon the application of 
        subparagraph (F) or (M) of subsection (h)(3), if a qualified 
        heir is not a citizen of the United States, any interest under 
        this section passing to or acquired by such heir (including any 
        interest held by such heir at a time described in subsection 
(f)(1)(C)) shall be treated as a qualified family-owned farm interest 
only if the interest passes or is acquired (or is held) in a qualified 
trust.
            ``(2) Qualified trust.--The term `qualified trust' means a 
        trust--
                    ``(A) which is organized under, and governed by, 
                the laws of the United States or a State, and
                    ``(B) except as otherwise provided in regulations, 
                with respect to which the trust instrument requires 
                that at least 1 trustee of the trust be an individual 
                citizen of the United States or a domestic corporation.
    ``(h) Other Definitions and Applicable Rules.--For purposes of this 
section--
            ``(1) Qualified heir.--The term `qualified heir'--
                    ``(A) has the meaning given to such term by section 
                2032A(e)(1), and
                    ``(B) includes any active employee of the trade or 
                business to which the qualified family-owned farm 
                interest relates if such employee has been employed by 
                such trade or business for a period of at least 10 
                years before the date of the decedent's death.
            ``(2) Member of the family.--The term `member of the 
        family' has the meaning given to such term by section 
        2032A(e)(2).
            ``(3) Applicable rules.--Rules similar to the following 
        rules shall apply:
                    ``(A) Section 2032A(b)(4) (relating to decedents 
                who are retired or disabled).
                    ``(B) Section 2032A(b)(5) (relating to special 
                rules for surviving spouses).
                    ``(C) Section 2032A(c)(2)(D) (relating to partial 
                dispositions).
                    ``(D) Section 2032A(c)(3) (relating to only 1 
                additional tax imposed with respect to any 1 portion).
                    ``(E) Section 2032A(c)(4) (relating to due date).
                    ``(F) Section 2032A(c)(5) (relating to liability 
                for tax; furnishing of bond).
                    ``(G) Section 2032A(c)(7) (relating to no tax if 
                use begins within 2 years; active management by 
                eligible qualified heir treated as material 
                participation).
                    ``(H) Section 2032A(e)(10) (relating to community 
                property).
                    ``(I) Section 2032A(e)(14) (relating to treatment 
                of replacement property acquired in section 1031 or 
                1033 transactions).
                    ``(J) Section 2032A(f) (relating to statute of 
                limitations).
                    ``(K) Section 6166(b)(3) (relating to farmhouses 
                and certain other structures taken into account).
                    ``(L) Subparagraphs (B), (C), and (D) of section 
                6166(g)(1) (relating to acceleration of payment).
                    ``(M) Section 6324B (relating to special lien for 
                additional estate tax).''
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter A of chapter 11 of such Code is amended by inserting after 
the item relating to section 2032A the following new item:

                              ``Sec. 2032B. Family-owned farm 
                                        exclusion.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after the date of the enactment of 
this Act.

SEC. 3. ONE-TIME EXCLUSION OF GAIN FROM SALE OR EXCHANGE OF LAND USED 
              IN FARMING TRADE OR 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 
              QUALIFIED FAMILY-OWNED FARM INTERESTS.

    ``(a) In General.--At the election of the taxpayer, gross income 
does not include gain from the sale or exchange of a qualified family-
owned farm interest (as defined in section 2032B) if--
            ``(1) the taxpayer has attained age 55 as of the close of 
        the taxable year, and
            ``(2) during the 8-year period ending on the date of the 
        sale or exchange there have been periods aggregating 5 years or 
        more during which--
                    ``(A) such interests were owned by the taxpayer or 
                a member of the taxpayer's family, and
                    ``(B) there was material participation (within the 
                meaning of section 2032A(e)(6)) by the taxpayer or a 
                member of the taxpayer's family in the operation of the 
                farm to which such interests relate.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--The amount excluded from gross 
        income under subsection (a) shall not exceed the lesser of--
                    ``(A) the qualified medical expenses paid by the 
                taxpayer during the period of 3 taxable years beginning 
                with the last taxable year ending before the date of 
                the sale or exchange, or
                    ``(B) $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) Qualified Medical Expenses.--For purposes of this section, 
the term `qualified medical expenses' means expenses for medical care 
(as defined in section 213) of the taxpayer, the spouse of the 
taxpayer, or any dependent (as defined in section 152).
    ``(d) 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.''
    ``(e) Certain Rules To Apply.--Rules similar to the following rules 
shall apply:
            ``(1) Section 2032A(b)(4) (relating to decedents who are 
        retired or disabled).
            ``(2) Section 2032A(b)(5) (relating to special rules for 
        surviving spouses).
            ``(3) Section 2032A(e)(10) (relating to community 
        property).
            ``(4) Section 2032A(e)(14) (relating to treatment of 
        replacement property acquired in section 1031 or 1033 
        transactions).''
    (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 
                                        qualified family-owned farm 
                                        interests.''
    (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.
                                 <all>