[Congressional Record (Bound Edition), Volume 146 (2000), Part 6]
[Extensions of Remarks]
[Page 8753]
[From the U.S. Government Publishing Office, www.gpo.gov]



 INTRODUCTION OF LEGISLATION TO PROVIDE EXTENDED PAYMENT OF ESTATE TAX 
                FOR ESTATES WITH CLOSELY HELD BUSINESSES

                                 ______
                                 

                         HON. NEIL ABERCROMBIE

                               of hawaii

                    in the house of representatives

                          Monday, May 22, 2000

  Mr. ABERCROMBIE. Mr. Speaker, Mrs. McCarthy from New York joins me 
today in introducing a bill to provide estate tax relief for closely 
held, family-owned businesses. Both Mrs. McCarthy and I support repeal 
of the estate tax and we have co-sponsored legislation in this 
Congress, H.R. 8, to effect repeal. The Ways and Means Committee will 
soon mark up H.R. 8 and report the measure for floor action.
  The estate tax threatens the survival of family businesses. Mrs. 
McCarthy has heard this in her Small Business Committee, just as I have 
heard from my constituents. Economists and tax experts confirm that the 
estate tax creates a true impediment in passing the family business to 
the next generation. The Congressional Budget Resolution, however, 
prevents an immediate repeal of the estate tax, and the anticipated 
committee recommendation will provide rate reduction with a gradual, 
extended phase down of the tax.
  I support that recommendation as do many of my colleagues. But 
family-owned businesses need immediate relief if they are to survive as 
family enterprises. Any business owner who dies during that phase-down 
period, will face the problem of having to sell the business to pay the 
tax. Active, family-owned businesses are inherently illiquid. The 
owners have invested most, if not all, of their assets in the business. 
Where a business constitutes the major part of a person's estate, the 
estate must sell off the business assets, or in many cases the business 
itself, to pay the federal estate tax within 9 months of the owner's 
death.
  Now, sale of the business or sale of the business assets is hard to 
complete within 9 months. The seller is not going to get the full value 
of the property in a forced sale. Instead of this losing proposition, 
an aging parent while still living will often sell the family business 
even though the children want to retain the enterprise.
  Even the tax scholars, who argue in favor of the estate tax, agree 
that family businesses face a true hardship to raise cash for the 
estate tax. They recommend that family businesses should have an 
extended period to pay off the tax so that the business will not have 
to be sold.
  Trying to deal with this problem, Congress in 1958 and again in 1976 
enacted the deferral and installment payment provisions in current law. 
Under section 6166 of the tax code, an executor of an estate can elect 
to defer payment of the federal estate tax for 4 years and pay the tax 
in annual installments over the next 10 years. The decedent's estate 
must pay the Treasury a discounted rate of interest on the amount of 
deferred tax outstanding. The 4-year deferral and 10-year installment 
payment apply as to the estate tax on a closely held business.
  This relief covers ownership of a sole proprietorship, a corporation, 
or a partnership. But the relief is restricted under an obsolete 
definition of eligibility. Back in 1948, the tax code defined a small 
business as having 10 or less shareholders or owners for Subchapter S 
treatment. In the estate tax area, relief was geared to the same 
definition under Subchapter S. In 1976, when Congress re-visited the 
estate tax, it extended the deferral and installment payment relief to 
businesses with 15 or less owners in keeping with the revised 
Subchapter S definition of small business. In 1996, Congress modified 
the definition of a small business under Subchapter S to mean a 
business with less than 75 owners, but Congress failed to make the 
comparable change in the estate tax. Consequently estate tax relief for 
closely held businesses is now based on an antiquated definition.
  The proposal in the bill Mrs. McCarthy and I are introducing, raises 
the number of permissible shareholders and partners in a qualifying 
business from 15 to 75 for purposes of section 6166 relief. Again, our 
proposal is consistent with the definition of a small business 
corporation in section 1361 of the tax code. Congress, in the Small 
Business Jobs Protection Act of 1996, had raised the permissible number 
of shareholders from 35 to 75 for small business corporations under 
section 1361, and Congress in that same bill should have made the same 
change for estate tax relief back in 1996.
  As I stated earlier, owners of closely held, family businesses have 
to sell their business to meet their estate tax liability. The proposed 
relief gives family-owned businesses as well as other closely held 
businesses, additional time to pay the tax. Business earnings could 
then be used to pay the decedent's estate tax liability without having 
to sell business assets or the business itself. The children could 
continue to own and run the family business. I commend this bill to my 
colleagues.

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