[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2101 Introduced in House (IH)]







105th CONGRESS
  1st Session
                                H. R. 2101

    To amend the Internal Revenue Code of 1986 to exclude qualified 
conservation easements from a decedent's gross estate, exempt from tax 
the gain on the sale of qualified forest land to government entities or 
              conservation groups, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 26, 1997

  Mr. Sununu 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 exclude qualified 
conservation easements from a decedent's gross estate, exempt from tax 
the gain on the sale of qualified forest land to government entities or 
              conservation groups, 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 AND AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Family Forest 
Conservation Act of 1997''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. EXCLUSION OF CONSERVATION EASEMENTS FROM GROSS ESTATE.

    (a) In General.--Section 2031 (relating to the definition of gross 
estate) is amended by redesignating subsection (c) as subsection (d) 
and by inserting after subsection (b) the following new subsection:
    ``(c) Exclusion of Conservation Easement.--
            ``(1) In general.--If the executor elects the application 
        of this subsection with respect to any qualified forestland 
        included in the gross estate, there shall be excluded from the 
        gross estate the value of any qualified conservation easement 
        with respect to such qualified forestland.
            ``(2) Qualified conservation easement.--For purposes of 
        this subsection, the term `qualified conservation easement' 
        means a qualified conservation contribution (as defined in 
        section 170(h)(1)) of a qualified real property interest 
        described in section 170(h)(2)(C) with respect to forestland 
        which--
                    ``(A) consists of 10 or more acres, and
                    ``(B) is subject to a forest management plan.
            ``(3) Certain historic preservation contributions not 
        included.--For purposes of paragraph (2), section 170(h)(4)(A) 
        shall be applied without regard to clause (iv) thereof in 
        determining whether there is a qualified conservation 
        contribution.
            ``(4) Qualified forest land.--For purposes of this 
        subsection, the term `qualified forestland' has the meaning 
        given such term by section 2032B(b) (determined without regard 
        to whether or not such forestland was acquired by or passed to 
        a qualified heir or devisee).
            ``(5) Election.--An election under paragraph (1) shall be 
        made on the return of tax imposed by section 2001. Such an 
        election, once made, shall be irrevocable.''
    (b) Effective Date.--The amendment made by this section shall apply 
to the estates of decedents dying after December 31, 1997.

SEC. 3. SPECIAL ESTATE TAX VALUATION OF FOREST LANDS.

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

``SEC. 2032B. VALUATION OF CERTAIN FORESTLAND.

    ``(a) Value Based on Use of Property as Forestland.--If--
            ``(1) the decedent was (at the time of his death) a citizen 
        or resident of the United States, and
            ``(2) the executor elects the application of this section 
        and files the agreement referred to in subsection (d)(2),
then, for purposes of this chapter, the value of qualified forestland 
shall be its value for the use under which it qualifies, under 
subsection (b), as qualified forestland.
    ``(b) Qualified Forestland.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified forestland' means real property located in the 
        United States which meets the requirements of paragraph (3) and 
        was acquired from or passed from the decedent to a qualified 
        devisee or qualified heir and which, on the date of the 
        decedent's death, was being used for a qualified forest use by 
        the decedent or a member of the decedent's family, but only 
        if--
                    ``(A) 25 percent or more of the adjusted value of 
                the gross estate consists of the adjusted value of real 
                property which meets the requirements of this 
                paragraph,
                    ``(B) 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 the real 
                property was used for a qualified forest use, and
                    ``(C) such real property is designated in the 
                agreement referred to in subsection (d)(2).
            ``(2) Qualified forest use.--For purposes of this section, 
        the term `qualified forest use' means the devotion of the 
        property to--
                    ``(A) use for a conservation purpose, as defined in 
                section 170(h)(4)(A) (determined without regard to 
                clause (iv) thereof), or
                    ``(B) use in timber operations.
            ``(3) Requirements for qualified forestland.--Real property 
        meets the requirements of this paragraph if such real 
        property--
                    ``(A) qualifies for a differential use value 
                assessment program for forestland in the State in which 
                the property is located; or
                    ``(B) if a State has no differential use value 
                assessment program--
                            ``(i) is forestland,
                            ``(ii) is a minimum of 10 acres, exclusive 
                        of a dwelling unit or other non-forest related 
                        structure and its curtilage; and
                            ``(iii) is subject to a forest management 
                        plan.
    ``(c) Tax Treatment of Dispositions and Failures To Use as 
Qualified Forest Use.--
            ``(1) Imposition of additional estate tax (recapture).--
                    ``(A) In general.--If, within 25 years after the 
                decedent's death and before the death of the qualified 
                devisee or qualified heir--
                            ``(i) the qualified devisee or qualified 
                        heir disposes of any interest in qualified 
                        forestland,
                            ``(ii) the qualified devisee or qualified 
                        heir ceases to use for a qualified forest use 
                        (whether or not the qualified forest use under 
                        which the property qualified, under subsection 
                        (b), as qualified forestland) the qualified 
                        forestland which was acquired (or passed) from 
                        the decedent for an aggregated period of 3 
                        years out of any 8-year period, or
                            ``(iii) any depreciable improvements are 
                        made to the property, other than those relating 
                        to any qualified forest use,
                then there is hereby imposed an additional estate tax.
                    ``(B) Exceptions.--Subparagraph (A) shall not apply 
                to--
                            ``(i) a testamentary disposition that 
                        itself qualifies for special valuation under 
                        this section,
                            ``(ii) a disposition by a qualified heir to 
                        any other person who agrees to continue 
                        devoting the heir's interest to any qualified 
                        forest use and signs the agreement in 
                        subsection (d)(2) (such person shall thereafter 
                        be treated as a qualified devisee with respect 
                        to such interest),
                            ``(iii) a disposition by a qualified 
                        devisee to a qualified heir of such devisee who 
                        agrees to continue devoting the devisee's 
                        interest to any qualified forest use and signs 
                        the agreement in subsection (d)(2) (such heir 
                        shall thereafter be treated as a qualified 
                        devisee with respect to such interest),
                            ``(iv) a disposition of timber used in a 
                        timber operation; and
                            ``(v) a disposition (other than by sale) of 
                        a qualified conservation contribution (as 
                        defined in section 170(h)).
            ``(2) Amount of additional tax.--The amount of the 
        additional tax imposed by paragraph (1)(A) with respect to any 
        interest shall be the amount equal to the lesser of--
                    ``(A) the adjusted tax difference with respect to 
                the estate (within the meaning of section 
                2032A(c)(2)(C), determined by substituting `section 
                2032B' for `subsection (a)'), or
                    ``(B) the amount realized from the disposition of 
                the interest.
            ``(3) Only one additional tax imposed with respect to any 
        one portion.--In the case of an interest acquired from (or 
        passing from) any decedent, if a particular clause of paragraph 
        (1)(A) applies to any portion of an interest, no other clause 
        of such paragraph shall apply with respect to the same portion 
        of such interest.
    ``(d) Election; Agreement.--
            ``(1) Election.--The election under this section shall be 
        made on the return of the tax imposed by section 2001. Such 
        election shall be made in such manner as the Secretary shall by 
        regulations prescribe. Such an election, once made, shall be 
        irrevocable.
            ``(2) Agreement.--The agreement referred to in this 
        paragraph is a written agreement signed by each person in being 
        who has an interest (whether or not in possession) in any 
        property designated in such agreement consenting to the 
        application of subsection (c) with respect to such property.
    ``(e) Definitions; Special Rules.--For purposes of this section--
            ``(1) Qualified devisee.--The term `qualified devisee' 
        means, with respect to any property, a person who acquired such 
        property (or to whom such property passed) from the decedent 
        and who is not a qualified heir of the decedent.
            ``(2) Person.--The term `person' means an individual, 
        partnership, corporation, or governmental entity.
            ``(3) Certain real property included.--In the case of real 
        property which meets the requirements of subparagraph (B) of 
        subsection (b)(1), any depreciable improvements, including 
        roads, which are related to the qualified forest use shall be 
        treated as real property devoted to that use.
            ``(4) Timber operations.--The term `timber operations' 
        means the planting, cultivating, caring for, or harvesting of 
        trees in the process of using and conserving renewable forest 
        resources.
            ``(5) Method of valuing forestland.--The value of 
        forestland shall be determined according to whichever of the 
        following methods results in the least value:
                    ``(A) Assessed land values in a State which 
                provides a differential or use value assessment for 
                forestland.
                    ``(B) Comparable sales of other forestland in the 
                same geographical area far enough removed from a 
                metropolitan or resort area so that nonforest use is 
                not a significant factor in the sales price.
                    ``(C) The capitalization of income which the 
                property can be expected to yield for timber operations 
                over a reasonable period of time under prudent 
                management, using traditional forest management for the 
                area, and taking into account soil capacity, terrain 
                configuration, and similar factors.
                    ``(D) Any other factor which fairly values the 
                timber value of the property.
            ``(6) Applicable definitions and rules of section 2032A.--
                    ``(A) Definitions.--Except as otherwise provided in 
                this section, any term used in this section which is 
                also used in section 2032A shall have the meaning given 
                such term by section 2032A.
                    ``(B) Rules.--Rules similar to the rules of the 
                following provisions of section 2032A shall apply to 
                this section, by substituting `qualified forestland' 
                for `qualified real property' and `qualified forest 
                use' for `qualified use', and shall apply to qualified 
                devisees as well as qualified heirs:
                            ``(i) Paragraphs (2)(D), (4), (5), and 
                        (7)(A) (by substituting `25 years' for `10 
                        years') of subsection (c).
                            ``(ii) Subsection (d)(3).
                            ``(iii) Paragraphs (9), (10), (11), and 
                        (14) (by substituting `active management' for 
                        `material participation') of subsection (e).
                            ``(iv) Subsections (f) and (g).
    ``(f) Special Rules for Involuntary Conversions of Qualified 
Forestland.--
            ``(1) Treatment of converted property.--
                    ``(A) In general.--If there is an involuntary 
                conversion of an interest in qualified forestland--
                            ``(i) no tax shall be imposed by subsection 
                        (c) on such conversion if the cost of the 
                        qualified replacement property equals or 
                        exceeds the amount realized on such conversion; 
                        or
                            ``(ii) if clause (i) does not apply, the 
                        amount of the tax imposed by subsection (c) on 
                        such conversion shall be the amount determined 
                        under subparagraph (B).
                    ``(B) Amount of tax where there is not complete 
                reinvestment.--The amount determined under this 
                subparagraph with respect to any involuntary conversion 
                is the amount of tax which (but for this subsection) 
                would have been imposed on such conversion reduced by 
                an amount which--
                            ``(i) bears the same ratio to such tax, as
                            ``(ii) the cost of the qualified 
                        replacement property bears to the amount 
                        realized on the conversion.
            ``(2) Treatment of replacement property.--For purposes of 
        subsection (c)--
                    ``(A) any qualified replacement property shall be 
                treated in the same manner as if it were a portion of 
                the interest in qualified forestland which was 
                involuntarily converted; except that with respect to 
                such qualified replacement property the 25-year period 
                under paragraph (1) of subsection (c) shall be extended 
                by any period, beyond the 2-year period referred to in 
                section 1033(a)(2)(B)(i), during which the qualified 
                devisee or qualified heir was allowed to replace the 
                qualified forestland;
                    ``(B) any tax imposed by subsection (c) on the 
                involuntary conversion shall be treated as a tax 
                imposed on a partial disposition, and
                    ``(C) subparagraph (A)(ii) of subsection (c)(1) 
                shall be applied by not taking into account periods 
                after the involuntary conversion and before the 
                acquisition of the qualified replacement property.
            ``(3) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Involuntary conversion.--The term 
                `involuntary conversion' means a compulsory or 
                involuntary conversion within the meaning of section 
                1033.
                    ``(B) Qualified replacement property.--The term 
                `qualified replacement property' means--
                            ``(i) in the case of an involuntary 
                        conversion described in section 1033(a)(1), any 
                        real property into which the qualified 
                        forestland is converted, or
                            ``(ii) in the case of an involuntary 
                        conversion described in section 1033(a)(2), any 
                        real property purchased by the qualified 
                        devisee or qualified heir during the period 
                        specified in section 1033(a)(2)(B) for purposes 
                        of replacing the qualified forestland.
                Such term only includes property which is to be used 
                for the qualified forest use set forth in subsection 
                (b)(2) under which the qualified forestland qualified 
                under subsection (a).
            ``(4) Certain rules made applicable.--The rules of the last 
        sentence of section 1033(a)(2)(A) shall apply for purposes of 
        paragraph (3)(B)(ii).
    ``(g) Exchanges of Qualified Forestland.--
            ``(1) Treatment of property exchanged.--
                    ``(A) Exchanges solely for qualified exchange 
                property.--If an interest in qualified forestland is 
                exchanged solely for an interest in qualified exchange 
                property in a transaction which qualifies under section 
                1031, no tax shall be imposed by subsection (c) by 
                reason of such exchange.
                    ``(B) Exchanges where other property received.--If 
                an interest in qualified forestland is exchanged for an 
                interest in qualified exchange property and other 
                property in a transaction which qualifies under section 
                1031, the amount of the tax imposed by subsection (c) 
                by reason of such exchange shall be the amount of tax 
                which (but for this subparagraph) would have been 
                imposed on such exchange under subsection (c)(1), 
                reduced by an amount which--
                            ``(i) bears the same ratio to such tax, as
                            ``(ii) the value of the qualified exchange 
                        property bears to the value of the qualified 
                        forestland exchanged.
                For purposes of clause (ii), value shall be determined 
                according to subsection (e)(6).
            ``(2) Treatment of qualified exchange property.--For 
        purposes of subsection (c)--
                    ``(A) any interest in qualified exchange property 
                shall be treated in the same manner as if it were a 
                portion of the interest in qualified forestland which 
                was exchanged; and
                    ``(B) any tax imposed by subsection (c) by reason 
                of the exchange shall be treated as a tax imposed on a 
                partial disposition.
            ``(3) Qualified exchange property.--For purposes of this 
        subsection, the term `qualified exchange property' means real 
        property which is to be used for a qualified forest use set 
        forth in subsection (b)(2) under which the real property 
        exchanged therefor originally qualified under subsection (a).''
    (b) Conforming Amendments.--
            (1) Section 1014(a)(3) is amended by inserting ``or 2032B'' 
        after ``2032A''.
            (2) Section 1016(c) is amended--
                    (A) by inserting ``or 2032B(c)(1)'' after 
                ``2032A(c)(1)'' in paragraphs (1), (3), (4), and 
                (5)(B),
                    (B) by inserting ``or qualified devisee'' after 
                ``qualified heir'' in paragraph (1),
                    (C) by inserting ``or 2032B(f)(3)(B)'' after 
                ``2032A(h)(3)(B)'' in paragraph (4), and
                    (D) by inserting ``or 2032B(g)(3)'' after 
                ``2032A(i)(3)'' in paragraph (4).
            (3) Section 1040 is amended--
                    (A) by inserting ``or qualified devisee (within the 
                meaning of section 2032B(e)(1))'' before ``any 
                property'' in subsection (a), and
                    (B) by inserting ``or 2032B'' after ``2032A'' in 
                subsections (a) and (b).
            (4) Section 1223(12)(C) is amended by inserting ``or 
        qualified devisee (within the meaning of section 2032B(e)(1))'' 
        before ``with respect''.
            (5) Section 2013 is amended--
                    (A) by inserting ``or 2032B'' after ``2032A'' each 
                place it appears in subsection (f) and the heading 
                thereof, and
                    (B) by inserting ``or 2032B(c)'' after ``2032A(c)'' 
                both places it appears in subsection (f).
            (6) Section 2035(d)(3)(B) is amended by inserting ``or 
        section 2032B (relating to special valuation of certain 
        forestland)'' after ``real property)''.
            (7) Section 2056A(b)(10)(A) is amended by inserting 
        ``2032B,'' after ``2032A,''.
            (8) Section 2624(b) is amended by striking ``sections 2032 
        and 2032A'' and inserting ``sections 2032, 2032A, and 2032B''.
            (9) Section 2663(1) is amended by striking ``section 
        2032A(c)'' and inserting ``sections 2032A(c) and 2032B(c)''.
            (10) Section 6324B is amended--
                    (A) by striking subsection (a) and inserting the 
                following new subsection:
    ``(a) General Rules.--
            ``(1) Section 2032a.--In the case of any interest in 
        qualified real property (within the meaning of section 
        2032A(b)), an amount equal to the adjusted tax difference 
        attributable to such interest (within the meaning of section 
        2032B(c)(2)(A)) shall be a lien in favor of the United States 
        on property in which such interest exists.
            ``(2) Section 2032b.--In the case of any interest in 
        qualified forestland (within the meaning of section 2032B(b)), 
        an amount equal to the adjusted tax difference with respect to 
        the estate (within the meaning of section 2032A(c)(2)(C)) shall 
        be a lien in favor of the United States on property in which 
        such interest exists.'',
                    (B) by inserting ``or 2032B'' after ``2032A'' both 
                places it appears in subsection (b),
                    (C) by inserting ``or 2032B(c)'' after ``2032A(c)'' 
                in subsection (b)(2), and
                    (D) by adding at the end of subsection (c) the 
                following new paragraph:
            ``(3) Qualified forestland.--For purposes of this section, 
        the term `qualified forestland' includes qualified replacement 
        property (within the meaning of section 2032B(f)(3)(B)) and 
        qualified exchange property (within the meaning of section 
        2032B(g)(3)).''
    (c) Clerical Amendment.--The table of sections for part III of 
subchapter A of chapter 11 is amended by adding at the end the 
following new item:

                              ``Sec. 2032B. Valuation of certain 
                                        forestland.''
    (d) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1998.

SEC. 4. EXCLUSION OF GAIN FROM SALE OF INTERESTS IN FOREST LANDS.

    (a) In General.--Part III of subchapter B of chapter 1 (relating to 
items specifically excluded from gross income) is amended by 
redesignating section 138 as section 139 and by inserting after section 
137 the following new section:

``SEC. 138. SALES OF INTERESTS IN CERTAIN FOREST LANDS.

    ``(a) Exclusion.--Gross income shall not include qualified timber 
gain.
    ``(c) Qualified Timber Gain.--For purposes of this section--
            ``(1) In general.--The term `qualified timber gain' means 
        gain from the sale or exchange of qualified forestland to a 
        qualified organization (as defined in section 170(h)(3)) for 
        conservation purposes.
            ``(2) Conservation purposes.--The term `conservation 
        purposes' has the meaning given such term by section 
        170(h)(4)(A) (without regard to clause (iv) thereof).
            ``(3) Qualified forestland.--The term `qualified 
        forestland' has the meaning given such term by section 2032B(b) 
        (determined without regard to whether or not such forestland 
        was acquired by or passed to a qualified heir or devisee and 
        without regard to section 2032B(b)(1)(C)).''
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 is amended by striking the item relating to 
section 138 and by inserting the following new items after the item 
relating to section 137:

                              ``Sec. 138. Sales of interests in certain 
                                        forest lands.
                              ``Sec. 139. Cross references to other 
                                        Acts.''
    (c) Effective Date.--The amendments made by this section shall 
apply to sales and exchanges after the date of the enactment of this 
Act.
                                 <all>