[Congressional Record Volume 151, Number 53 (Wednesday, April 27, 2005)]
[Senate]
[Pages S4422-S4425]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. LINCOLN:
  S. 928. A bill to amend the Internal Revenue Code of 1986 to provide 
for the

[[Page S4423]]

immediate and permanent repeal of the estate tax on family-owned 
businesses and farms, and for other purposes; to the Committee on 
Finance.
  Mrs. LINCOLN. Mr. President, four years ago, as projected budget 
surpluses reached over $5 trillion, Congress passed a tax cut bill that 
began the process of addressing the unfairness of the estate tax. Now 
in 2005, the surpluses have long since disappeared, and Congress has 
made no further progress on estate tax relief for America's family-
owned farms and businesses--many of whom still pay this tax today.
  Earlier this month, the House once again voted for a complete repeal 
of the estate tax. I myself have consistently supported complete 
repeal, I have voted in favor of full repeal on multiple occasions, and 
I will continue to support full repeal should that option be brought to 
the floor of the U.S. Senate for a vote in the future. Nevertheless, 
given the persistent state of our more than $400 billion annual 
deficits, it is increasingly doubtful such a bill could obtain the 
necessary votes in the Senate for passage right now.
  I'm not alone in feeling that the votes just aren't there for full 
repeal. President of the U.S. Chamber, Tom Donahue, was quoted this 
week stating that the Chamber would likely support a good compromise 
coming out of the Senate. We all understand the state of affairs and I 
want to echo Mr. Donahue's sentiments. We must work together to bring 
relief to those that this tax affects most--family-owned farms and 
businesses.
  It is the family-owned farms and businesses across Arkansas and all 
across this Nation that serve as the backbone of our rural communities. 
To put it simply, they are the economic engines of rural America. It is 
the family-owned businesses that provide jobs, wages, and health care 
for my constituents. It is the family-owned businesses that sponsor 
Little League, they pay local taxes, they are a part of the community. 
They live there. And that's why family-owned businesses aren't the ones 
that are shutting down and heading off-shore. When we force family 
businesses to spend valuable assets on estate planning and life 
insurance rather than on investing and expanding their businesses, we 
are putting them at a disadvantage to their publically-traded 
competitors. I, for one, intend to fight for these family businesses, 
fight for these communities, and fight for the jobs in rural America.
  In the wake of the House vote and the real lack of votes here in the 
Senate to pass a complete repeal bill, talk of compromise has raised 
speculation of higher exemptions and/or lower tax rates as an 
alternative to complete repeal.

  Quite frankly, I believe these compromise approaches are incomplete 
solutions to the problems faced by family-owned farms and businesses. 
Certainly, I understand that a higher exemption and lower rates will be 
considered as part of a compromise. But both are expensive and 
inefficient methods to specifically reach family-owned farms and 
businesses.
  Given the restraints of our budget deficits today, I ask, how can we 
raise the exemption high enough, or lower the rates low enough, to 
provide necessary relief for family farms and businesses?
  We could not get there in 2001 when projected surpluses reached $5 
trillion. What makes us think we can solve this problem today with 
projected deficits totaling $2.6 trillion in the President's budget?
  We took these approaches in 2001, and family-owned farms and 
businesses still face this tax today, so we should be leery of any 
compromise approach that considers only rates and exemptions. They were 
incomplete compromise solutions then--and they will be tomorrow.
  In this environment, I feel we are seriously losing ground on coming 
to a fair and final resolution of this issue. In the meantime, the 
current state of the law places many family-owned businesses in an 
extremely uncertain and precarious position--a law that taxes family-
owned businesses today, then repeals the tax in 2010, and then snaps 
back to pre-2001 law in 2011 is simply not responsible on our part. 
This amounts to nothing more than a nightmarish rollercoaster ride for 
the businesses we intended to help!
  So, we need to set some priorities and go about the business of 
lifting this tax from these family-owned farms and businesses first.
  On the subject of setting priorities, I would like to relay a 
statistic that may startle my colleagues a bit. The IRS Statistics of 
Income for 2003 show that only 7.4 percent of the estate tax is paid on 
``farm assets, closely held stock, or other non-corporate business 
assets.'' These 7.4 percent should be our first priority in any 
compromise the estate tax. The remaining 92.6 percent of assets--such 
as widely-held stock, bonds, insurance proceeds, art, and real estate 
partnerships--should not drive or dictate our actions at the expense of 
America's family-owned farms and businesses.
  This simple statistic helps lead us to a targeted solution which 
should cost less and immediately help those we intended to help in the 
first place. Today, I introduce the ``Estate Tax Repeal Acceleration 
for Family-Owned Businesses and Farms Act''--or ExTRA. Under ExTRA, an 
estate may voluntarily elect to exclude an unlimited portion of family 
business assets from the estate tax. The carryover basis rules will 
apply to these business assets and no estate tax will be paid on them. 
That is the same deal that repeal promises--but we do so immediately 
and permanently--and at a fraction of the cost.
  My bill does not seek to change current law to repeal the estate tax. 
It would leave in place the scheduled increases in the unified credit, 
the decreases in rates, and the repeal of the estate tax in 2010. My 
bill would only seek to rectify the special circumstances of family-
owned businesses and farms, in an attempt, not to inflame the issue 
further, but to resolve this issue now and forever for those this 
effort was originally intended to help.
  The goal of the Lincoln bill is that no family-owned farm or business 
will ever pay the estate tax. Americans are driven to build their lives 
and their communities and they want to be able to pass that on to the 
next generation. What comes of the American dream if someone works hard 
all their life to build something to pass on to their family, their 
legacy, and it has to be sold for taxes.
  If there is an idea that will protect the American dream and the 
family-owned business, we should not be reluctant to put it on the 
table. Today, I am introducing such an idea, and I firmly believe such 
an approach must be part of any compromise if one is reached. In fact, 
I will not support any compromise that does not take care of family 
businesses in Arkansas.
  I urge my colleagues to take a look and study the Lincoln bill to 
immediately and permanently repeal the estate tax for family owned 
farms and businesses.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 928

       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 ``Estate Tax Repeal 
     Acceleration (ExTRA) for Family-Owned Businesses and Farms 
     Act''.

     SEC. 2. REPEAL OF ESTATE TAX ON FAMILY-OWNED BUSINESSES AND 
                   FARMS.

       (a) Carryover Business Interest Exclusion.--Part IV of 
     subchapter A of chapter 11 of the Internal Revenue Code of 
     1986 (relating to taxable estate) is amended by inserting 
     after section 2058 the following new section:

     ``SEC. 2059. CARRYOVER BUSINESS INTERESTS.

       ``(a) General Rules.--
       ``(1) Allowance of deduction.--For purposes of the tax 
     imposed by section 2001, in the case of an estate of a 
     decedent to which this section applies, the value of the 
     taxable estate shall be determined by deducting from the 
     value of the gross estate the adjusted value of the carryover 
     business interests of the decedent which are described in 
     subsection (b)(2).
       ``(2) Application of carryover basis rules.--With respect 
     to the adjusted value of the carryover business interests of 
     the decedent which are described in subsection (b)(2), the 
     rules of section 1023 shall apply.
       ``(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,

[[Page S4424]]

       ``(B) the executor elects the application of this section 
     under rules similar to the rules of paragraphs (1) and (3) of 
     section 2032A(d) and files the agreement referred to in 
     subsection (e), 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) the carryover business interests described in 
     paragraph (2) 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, a member of the 
     decedent's family, or a qualified heir in the operation of 
     the business to which such interests relate.
       ``(2) Includible carryover business interests.--The 
     carryover business interests described in this paragraph are 
     the interests which--
       ``(A) are included in determining the value of the gross 
     estate,
       ``(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)), and
       ``(C) are subject to the election under paragraph (1)(B).
       ``(3) Rules regarding material participation.--For purposes 
     of paragraph (1)(C)(ii)--
       ``(A) in the case a surviving spouse, material 
     participation by such spouse may be satisfied under rules 
     similar to the rules under section 2032A(b)(5),
       ``(B) in the case of a carryover business interest in an 
     entity carrying on multiple trades or businesses, material 
     participation in each trade or business is satisfied by 
     material participation in the entity or in 1 or more of the 
     multiple trades or businesses, and
       ``(C) in the case of a lending and finance business (as 
     defined in section 6166(b)(10)(B)(ii)), material 
     participation is satisfied under the rules under subclause 
     (I) or (II) of section 6166(b)(10)(B)(i).
       ``(c) Adjusted Value of the Carryover Business Interests.--
     For purposes of this section--
       ``(1) In general.--The adjusted value of any carryover 
     business interest is the value of such interest for purposes 
     of this chapter (determined without regard to this section), 
     as adjusted under paragraph (2).
       ``(2) Adjustment for previous transfers.--The Secretary may 
     increase the value of any carryover business interest by that 
     portion of those assets transferred from such carryover 
     business interest to the decedent's taxable estate within 3 
     years before the date of the decedent's death.
       ``(d) Carryover Business Interest.--
       ``(1) In general.--For purposes of this section, the term 
     `carryover business interest' means--
       ``(A) an interest as a proprietor in a trade or business 
     carried on as a proprietorship, or
       ``(B) an interest in an entity carrying on a 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.

     For purposes of the preceding sentence, a decedent shall be 
     treated as engaged in a trade or business if any member of 
     the decedent's family is engaged in such trade or business.
       ``(2) Lending and finance business.--For purposes of this 
     section, any asset used in a lending and finance business (as 
     defined in section 6166(b)(10)(B)(ii)) shall be treated as an 
     asset which is used in carrying on a trade or business.
       ``(3) 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,
       ``(C) that portion of an interest in an entity transferred 
     by gift to such interest within 3 years before the date of 
     the decedent's death, and
       ``(D) that portion of an interest in an entity which is 
     attributable to cash or marketable securities, or both, in 
     any amount in excess of the reasonably anticipated business 
     needs of such entity.

     In any proceeding before the United States Tax Court 
     involving a notice of deficiency based in whole or in part on 
     the allegation that cash or marketable securities, or both, 
     are accumulated in an amount in excess of the reasonably 
     anticipated business needs of such entity, the burden of 
     proof with respect to such allegation shall be on the 
     Secretary to the extent such cash or marketable securities 
     are less than 35 percent of the value of the interest in such 
     entity.
       ``(4) 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 carryover 
     business interest, and
       ``(ii) this section shall be applied separately in 
     determining if such interest in any other trade or business 
     is a carryover business 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.
       ``(e) Agreement.--The agreement referred to in this 
     subsection 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 this section with respect to such property.
       ``(f) Other Definitions and Applicable Rules.--For purposes 
     of this section--
       ``(1) Qualified heir.--The term `qualified heir' means a 
     United States citizen who is--
       ``(A) described in section 2032A(e)(1), or
       ``(B) an active employee of the trade or business to which 
     the carryover business 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(e)(10) (relating to community 
     property).
       ``(C) Section 2032A(e)(14) (relating to treatment of 
     replacement property acquired in section 1031 or 1033 
     transactions).
       ``(D) Section 2032A(g) (relating to application to 
     interests in partnerships, corporations, and trusts).
       ``(4) Safe harbor for active entities held by entity 
     carrying on a trade or business.--For purposes of this 
     section, if--
       ``(A) an entity carrying on a trade or business owns 20 
     percent or more in value of the voting interests of another 
     entity, or such other entity has 15 or fewer owners, and
       ``(B) 80 percent or more of the value of the assets of each 
     such entity is attributable to assets used in an active 
     business operation, then the requirements under subsections 
     (b)(1)(C)(ii) and (d)(3)(D) shall be met with respect to an 
     interest in such an entity.''.
       (b) Carryover Basis Rules for Carryover Business 
     Interests.--Part II of subchapter O of chapter 1 of the 
     Internal Revenue Code of 1986 (relating to basis rules of 
     general application) is amended by inserting after section 
     1022 the following new section:

     ``SEC. 1023. TREATMENT OF CARRYOVER BUSINESS INTERESTS.

       ``(a) In General.--Except as otherwise provided in this 
     section--
       ``(1) qualified property acquired from a decedent shall be 
     treated for purposes of this subtitle as transferred by gift, 
     and
       ``(2) the basis of the person acquiring qualified property 
     from such a decedent shall be the lesser of--
       ``(A) the adjusted basis of the decedent, or
       ``(B) the fair market value of the property at the date of 
     the decedent's death.
       ``(b) Qualified Property.--For purposes of this section, 
     the term `qualified property' means the carryover business 
     interests of the decedent with respect to which an election 
     is made under section 2059(b)(1)(B).
       ``(c) Property Acquired From the Decedent.--For purposes of 
     this section, the following property shall be considered to 
     have been acquired from the decedent:
       ``(1) Property acquired by bequest, devise, or inheritance, 
     or by the decedent's estate from the decedent.
       ``(2) Property transferred by the decedent during his 
     lifetime--
       ``(A) to a qualified revocable trust (as defined in section 
     645(b)(1)), or
       ``(B) to any other trust with respect to which the decedent 
     reserved the right to make any change in the enjoyment 
     thereof through the exercise of a power to alter, amend, or 
     terminate the trust.
       ``(3) Any other property passing from the decedent by 
     reason of death to the extent that such property passed 
     without consideration.
       ``(d) Coordination With Section 691.--This section shall 
     not apply to property which constitutes a right to receive an 
     item of income in respect of a decedent under section 691.
       ``(e) Certain Liabilities Disregarded.--
       ``(1) In general.--In determining whether gain is 
     recognized on the acquisition of property--

[[Page S4425]]

       ``(A) from a decedent by a decedent's estate or any 
     beneficiary other than a tax-exempt beneficiary, and
       ``(B) from the decedent's estate by any beneficiary other 
     than a tax-exempt beneficiary, and in determining the 
     adjusted basis of such property, liabilities in excess of 
     basis shall be disregarded.
       ``(2) Tax-exempt beneficiary.--For purposes of paragraph 
     (1), the term `tax-exempt beneficiary' means--
       ``(A) the United States, any State or political subdivision 
     thereof, any possession of the United States, any Indian 
     tribal government (within the meaning of section 7871), or 
     any agency or instrumentality of any of the foregoing,
       ``(B) an organization (other than a cooperative described 
     in section 521) which is exempt from tax imposed by chapter 
     1,
       ``(C) any foreign person or entity (within the meaning of 
     section 168(h)(2)), and
       ``(D) to the extent provided in regulations, any person to 
     whom property is transferred for the principal purpose of tax 
     avoidance.
       ``(f) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this section.''.
       (c) Clerical Amendments.--
       (1) The table of sections for part IV of subchapter A of 
     chapter 11 of the Internal Revenue Code of 1986 is amended by 
     inserting after the item relating to section 2058 the 
     following new item:

``Sec. 2059. Carryover business exclusion.''.

       (2) The table of sections for part II of subchapter O of 
     chapter 1 of such Code is amended by inserting after the item 
     relating to section 1022 the following new item:

``Sec. 1023. Treatment of carryover business interests.''.

       (d) Effective Dates.--The amendments made by this section 
     shall apply to estates of decedents dying, and gifts made--
       (1) after the date of the enactment of this Act, and before 
     January 1, 2010, and
       (2) after December 31, 2010.
                                 ______