[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 499 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 499

 To amend the Internal Revenue Code of 1986 to provide an election to 
 exclude from the gross estate of a decedent the value of certain land 
  subject to a qualified conservation easement, and to make technical 
                changes to alternative valuation rules.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 20, 1997

  Mr. Chafee (for himself, Mr. Baucus, and Mr. Gregg) 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 provide an election to 
 exclude from the gross estate of a decedent the value of certain land 
  subject to a qualified conservation easement, and to make technical 
                changes to alternative valuation rules.

    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 Farm and Ranch Protection 
Act of 1997''.

SEC. 2. TREATMENT OF LAND SUBJECT TO A QUALIFIED CONSERVATION EASEMENT.

    (a) Estate Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--Section 2031 of the Internal Revenue Code of 
1986 (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) Estate Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--
            ``(1) In general.--If the executor makes the election 
        described in paragraph (4), then, except as otherwise provided 
        in this subsection, there shall be excluded from the gross 
        estate the value of land subject to a qualified conservation 
        easement.
            ``(2) Treatment of certain indebtedness.--
                    ``(A) In general.--The exclusion provided in 
                paragraph (1) shall not apply to the extent that the 
                land is debt-financed property.
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Debt-financed property.--The term 
                        `debt-financed property' means any property 
                        with respect to which there is an acquisition 
                        indebtedness (as defined in clause (ii)) on the 
                        date of the decedent's death.
                            ``(ii) Acquisition indebtedness.--The term 
                        `acquisition indebtedness' means, with respect 
                        to debt-financed property, the unpaid amount 
                        of--
                                    ``(I) the indebtedness incurred by 
                                the donor in acquiring such property,
                                    ``(II) the indebtedness incurred 
                                before the acquisition of such property 
                                if such indebtedness would not have 
                                been incurred but for such acquisition.
                                    ``(III) the indebtedness incurred 
                                after the acquisition of such property 
                                if such indebtedness would not have 
                                been incurred but for such acquisition 
                                and the incurrence of such indebtedness 
                                was reasonably foreseeable at the time 
                                of such acquisition, except that 
                                indebtedness incurred after the 
                                acquisition of such property is not 
                                acquisition indebtedness if incurred to 
                                carry on activities directly related to 
                                farming, ranching, forestry, 
                                horticulture, or viticulture, and
                                    ``(IV) the extension, renewal, or 
                                refinancing of an acquisition 
                                indebtedness.
            ``(3) Treatment of retained development right.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                the value of any development right retained by the 
                donor in the conveyance of a qualified conservation 
                easement.
                    ``(B) Termination of retained development right.--
                If every person in being who has an interest (whether 
                or not in possession) in such land shall execute an 
                agreement to extinguish permanently some or all of any 
                development rights (as defined in subparagraph (D)) 
                retained by the donor on or before the date for filing 
                the return of the tax imposed by section 2001, then any 
                tax imposed by section 2001 shall be reduced 
                accordingly. Such agreement shall be filed with the 
                return of the tax imposed by section 2001. The 
                agreement shall be in such form as the Secretary shall 
                prescribe.
                    ``(C) Additional tax.--Failure to implement the 
                agreement described in subparagraph (B) within 2 years 
                of the decedent's death shall result in the imposition 
of an additional tax in the amount of tax which would have been due on 
the retained development rights subject to such agreement. Such 
additional tax shall be due and payable on the last day of the 6th 
month following the end of the 2-year period.
                    ``(D) Development right defined.--For purposes of 
                this paragraph, the term `development right' means the 
                right to establish or use any structure and the land 
                immediately surrounding it for sale (other than the 
                sale of the structure as part of a sale of the entire 
                tract of land subject to the qualified conservation 
                easement), or other commercial purpose which is not 
                subordinate to and directly supportive of the activity 
                of farming, forestry, ranching, horticulture, or 
                viticulture conducted on land subject to the qualified 
                conservation easement in which such right is retained.
            ``(4) Election.--The election under this subsection shall 
        be made on the return of the tax imposed by section 2001. Such 
        an election, once made, shall be irrevocable.
            ``(5) Calculation of estate tax due.--An executor making 
        the election described in paragraph (4) shall, for purposes of 
        calculating the amount of tax imposed by section 2001, include 
        the value of any development right (as defined in paragraph 
        (3)) retained by the donor in the conveyance of such qualified 
        conservation easement. The computation of tax on any retained 
        development right prescribed in this paragraph shall be done in 
        such manner and on such forms as the Secretary shall prescribe.
            ``(6) Definitions.--For purposes of this subsection--
                    ``(A) Land subject to a qualified conservation 
                easement.--The term `land subject to a qualified 
                conservation easement' means land--
                            ``(i) which is located in or within 50 
                        miles of an area which, on the date of the 
                        decedent's death--
                                    ``(I) is a metropolitan area (as 
                                defined by the Office of Management and 
                                Budget),
                                    ``(II) is a National Park or 
                                wilderness area designated as part of 
                                the National Wilderness Preservation 
                                System (unless it is determined by the 
                                Secretary that land in or within 50 
                                miles of such a park or wilderness area 
                                is not under significant development 
                                pressure), or
                                    ``(III) is an Urban National Forest 
                                (as designated by the Forest Service),
                            ``(ii) which was owned by the decedent or a 
                        member of the decedent's family at all times 
                        during the 3-year period ending on the date of 
                        the decedent's death, and
                            ``(iii) with respect to which a qualified 
                        conservation easement is or has been made by 
                        the decedent or a member of the decedent's 
                        family.
                    ``(B) Qualified conservation easement.--The term 
                `qualified conservation easement' means a qualified 
                conservation contribution (as defined in section 
                170(h)(1)) of a qualified real property interest (as 
                defined in section 170(h)(2)(C)), except that for this 
                purpose the term `qualified real property interest' 
                shall not include any structure or building 
                constituting `a certified historic structure' as 
                defined in section 170(h)(4)(B), and the restriction on 
                the use of such interest described in section 
                170(h)(2)(C) shall include a prohibition on commercial 
                recreational activity, except that the leasing of 
                fishing and hunting rights shall not be considered 
                commercial recreational activity when such leasing is 
                subordinate to the activities of farming, ranching, 
                forestry, horticulture or viticulture.
                    ``(C) Member of family.--The term `member of the 
                decedent's family' means any member of the family (as 
                defined in section 2032A(e)(2)) of the decedent.''
            ``(7) Application of this section to interests in 
        partnerships, corporations, and trusts.--The Secretary shall 
        prescribe regulations applying this section to an interest in a 
        partnership, corporation, or trust which, with respect to the 
        decedent, is an interest in a closely held business (within the 
        meaning of paragraph (1) of section 6166(b)).''
    (b) Carryover Basis.--Section 1014(a) of such Code (relating to 
basis of property acquired from a decedent) is amended by striking the 
period at the end of paragraph (3) and inserting ``, or'' and by adding 
after paragraph (3) the following new paragraph:
            ``(4) to the extent of the applicability of the exclusion 
        described in section 2031(c), the basis in the hands of the 
        decedent.''
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1996.

SEC. 3. GIFT TAX ON LAND SUBJECT TO A QUALIFIED CONSERVATION EASEMENT.

    (a) Gift Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--Section 2503 of the Internal Revenue Code of 
1986 (relating to taxable gifts) is amended by adding at the end the 
following new subsection:
    ``(h) Gift Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--The transfer by gift of land subject to a 
qualified conservation easement shall not be treated as a transfer of 
property by gift for purposes of this chapter. For purposes of this 
subsection, the term `land subject to a qualified conservation 
easement' has the meaning given to such term by section 2031(c); except 
that references to the decedent shall be treated as references to the 
donor and references to the date of the decedent's death shall be 
treated as references to the date of the transfer by the donor.''
    (b) Effective Date.--The amendment made by this section shall apply 
to gifts made after December 31, 1996.

SEC. 4. QUALIFIED CONSERVATION CONTRIBUTION IS NOT A DISPOSITION.

    (a) Qualified Conservation Contribution Is Not a Disposition.--
Subsection (c) of section 2032A of the Internal Revenue Code of 1986 
(relating to alternative valuation method) is amended by adding at the 
end the following new paragraphs:
            ``(8) Qualified conservation contribution is not a 
        disposition.--A qualified conservation contribution (as defined 
        in section 170(h)) by gift or otherwise shall not be deemed a 
        disposition under subsection (c)(1)(A).
            ``(9) Exception for real property is land subject to a 
        qualified conservation easement.--If qualified real property is 
        land subject to a qualified conservation easement (as defined 
        in section 2031(c)), the preceding paragraphs of this 
        subsection shall not apply.''
    (b) Land Subject to a Qualified Conservation Easement Is Not 
Disqualified.--Subsection (b) of section 2032A of such Code (relating 
to alternative valuation method) is amended by adding at the end the 
following paragraph:
                    ``(E) If property is otherwise qualified real 
                property, the fact that it is land subject to a 
                qualified conservation easement (as defined in section 
                2031(c)) shall not disqualify it under this section.''
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to contributions made, and easements granted, after 
December 31, 1996.

SEC. 5. QUALIFIED CONSERVATION CONTRIBUTION WHERE SURFACE AND MINERAL 
              RIGHTS ARE SEPARATED.

    (a) In General.--Section 170(h)(5)(B)(ii) of the Internal Revenue 
Code of 1986 (relating to special rule) is amended to read as follows:
            ``(ii) Special rule.--With respect to any contribution of 
        property in which the ownership of the surface estate and 
        mineral interests has been and remains separated, subparagraph 
        (A) shall be treated as met if the probability of surface 
        mining occurring on such property is so remote as to be 
        negligible.''
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to contributions made after December 31, 1992, in taxable 
years ending after such date.
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