H.R. 1299 (105th): Family Business Protection Act of 1997

105th Congress, 1997–1998. Text as of Apr 10, 1997 (Introduced).

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HR 1299 IH

105th CONGRESS

1st Session

H. R. 1299

To amend the Internal Revenue Code of 1986 to provide relief from estate and gift taxes.

IN THE HOUSE OF REPRESENTATIVES

April 10, 1997

Mr. MCCRERY (for himself, Ms. DUNN, Mr. HERGER, Mr. CHRISTENSEN, and Mr. CONDIT) 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 provide relief from estate and gift taxes.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) SHORT TITLE- This Act may be cited as the ‘Family Business Protection 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.

TITLE I--RELIEF FOR ALL INDIVIDUALS

SEC. 101. UNIFIED CREDIT AGAINST ESTATE AND GIFT TAXES REPLACED WITH UNIFIED EXEMPTION AMOUNT.

    (a) IN GENERAL-

      (1) ESTATE TAX- Part IV of subchapter A of chapter 11 is amended by inserting after section 2051 the following new section:

‘SEC. 2052. EXEMPTION.

    ‘(a) IN GENERAL- For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate an amount equal to the excess (if any) of--

      ‘(1) the exemption amount for the calendar year in which the decedent died, over

      ‘(2) the sum of--

        ‘(A) the aggregate amount allowed as an exemption under section 2521 (or the corresponding provisions of prior law) with respect to gifts made by the decedent after December 31, 1976, and

        ‘(B) the aggregate amount of gifts made by the decedent for which credit was allowed by section 2505 (as in effect on the day before the date of the enactment of the Family Business Protection Act of 1997).

    Gifts which are includible in the gross estate of the decedent shall not be taken into account in determining the amounts under paragraph (2).

    ‘(b) EXEMPTION AMOUNT- For purposes of subsection (a), the term ‘exemption amount’ means the amount determined in accordance with the following table:

‘In the case of

--The exemption

calendar year:

--amount is:

1998

--$680,000

1999

--$760,000

2000

--$840,000

2001

--$920,000

2002 or thereafter

--$1,000,000.

    ‘(c) COST-OF-LIVING ADJUSTMENTS- In the case of any decedent dying in a calendar year after 2002, the $1,000,000 amount set forth in subsection (b) shall be increased by an amount equal to--

      ‘(1) $1,000,000, multiplied by

      ‘(2) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting ‘calendar year 2001’ for ‘calendar year 1992’ in subparagraph (B) thereof.

    If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000.’

      (2) GIFT TAX- Subchapter C of chapter 12 (relating to deductions) is amended by inserting before section 2522 the following new section:

‘SEC. 2521. EXEMPTION.

    ‘(a) IN GENERAL- In computing taxable gifts for any calendar year, there shall be allowed as a deduction in the case of a citizen or resident of the United States an amount equal to the excess of--

      ‘(1) the exemption amount determined under section 2052 for such calendar year, over

      ‘(2) the sum of--

        ‘(A) the aggregate amount allowed as an exemption under this section (or the corresponding provisions of prior law) for all preceding calendar periods, and

        ‘(B) the aggregate amount of gifts for which credit was allowed by section 2505 (as in effect on the day before the date of the enactment of the Family Business Protection Act of 1997).’

    (b) REPEAL OF UNIFIED CREDITS-

      (1) Section 2010 (relating to unified credit against estate tax) is hereby repealed.

      (2) Section 2505 (relating to unified credit against gift tax) is hereby repealed.

    (c) CONFORMING AMENDMENTS-

      (1) Subsection (b) of section 2001 is amended by adding at the end the following new sentence: ‘For purposes of paragraph (2), the amount of the tax payable under chapter 12 shall be determined without regard to the credit provided by section 2505 (as in effect on the day before the date of the enactment of the Family Business Protection Act of 1997).’

      (2) Paragraph (2) of section 2001(c) is amended to read as follows:

      ‘(2) PHASEOUT OF GRADUATED RATES- The amount of the tax determined under paragraph (1) shall be increased by 5 percent of so much of the taxable estate as exceeds $10,000,000 but does not exceed the amount at which the average tax rate under this section is 55 percent.’

      (3) Subsection (f) of section 2011 is amended by striking ‘, reduced by the amount of the unified credit provided by section 2010’.

      (4) Subsection (a) of section 2012 is amended by striking ‘and the unified credit provided by section 2010’.

      (5) Subsection (b) of section 2013 is amended by inserting before the period at the end of the first sentence ‘and increased by the exemption allowed under section 2052 or 2106(a)(4) (or the corresponding provisions of prior law) in determining the taxable estate of the transferor for purposes of the estate tax’.

      (6) Subparagraph (A) of section 2013(c)(1) is amended by striking ‘2010,’.

      (7) Paragraph (2) of section 2014(b) is amended by striking ‘2010,’.

      (8) Clause (ii) of section 2056A(b)(12)(C) is amended to read as follows:

          ‘(ii) to treat any reduction in the tax imposed by paragraph (1)(A) by reason of the credit allowable under section 2010 (as in effect on the day before the date of the enactment of the Family Business Protection Act of 1997) or the exemption allowable under section 2052 with respect to the decedent as such a credit or exemption (as the case may be) allowable to such surviving spouse for purposes of determining the amount of the exemption allowable under section 2521 with respect to taxable gifts made by the surviving spouse during the year in which the spouse becomes a citizen or any subsequent year,’.

      (9) Section 2102 is amended by striking subsection (c).

      (10) Subsection (a) of section 2106 is amended by adding at the end the following new paragraph:

      ‘(4) EXEMPTION-

        ‘(A) IN GENERAL- An exemption of $60,000.

        ‘(B) RESIDENTS OF POSSESSIONS OF THE UNITED STATES- In the case of a decedent who is considered to be a nonresident not a citizen of the United States under section 2209, the exemption under this paragraph shall be the greater of--

          ‘(i) $60,000, or

          ‘(ii) that proportion of $175,000 which the value of that part of the decedent’s gross estate which at the time of his death is situated in the United States

bears to the value of his entire gross estate wherever situated.

        ‘(C) SPECIAL RULES-

          ‘(i) COORDINATION WITH TREATIES- To the extent required under any treaty obligation of the United States, the exemption allowed under this paragraph shall be equal to the amount which bears the same ratio to the exemption amount under section 2052 (for the calendar year in which the decedent died) as the value of the part of the decedent’s gross estate which at the time of his death is situated in the United States bears to the value of his entire gross estate wherever situated. For purposes of the preceding sentence, property shall not be treated as situated in the United States if such property is exempt from the tax imposed by this subchapter under any treaty obligation of the United States.

          ‘(ii) COORDINATION WITH GIFT TAX EXEMPTION AND UNIFIED CREDIT- If an exemption has been allowed under section 2521 (or a credit has been allowed under section 2505 as in effect on the day before the date of the enactment of the Family Business Protection Act of 1997) with respect to any gift made by the decedent, each dollar amount contained in subparagraph (A) or (B) or the exemption amount applicable under clause (i) of this subparagraph (whichever applies) shall be reduced by the exemption so allowed under 2521 (or, in the case of such a credit, by the amount of the gift for which the credit was so allowed).’

      (11) Subsection (c) of section 2107 is amended--

        (A) by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively, and

        (B) by striking the second sentence of paragraph (2) (as so redesignated).

      (12) Section 2206 is amended by striking ‘the taxable estate’ in the first sentence and inserting ‘the sum of the taxable estate and the amount of the exemption allowed under section 2052 or 2106(a)(4) in computing the taxable estate’.

      (13) Section 2207 is amended by striking ‘the taxable estate’ in the first sentence and inserting ‘the sum of the taxable estate and the amount of the exemption allowed under section 2052 or 2106(a)(4) in computing the taxable estate’.

      (14) Subparagraph (B) of section 2207B(a)(1) is amended to read as follows:

        ‘(B) the sum of the taxable estate and the amount of the exemption allowed under section 2052 or 2106(a)(4) in computing the taxable estate.’

      (15) Paragraph (3) of section 2504(a) is amended to read as follows:

      ‘(3) the exemption (if any) allowable under section 2521 (or the corresponding provisions of prior law) shall be applied in all computations in respect of preceding calendar periods ending before January 1, 1977, or after December 31, 1997, for purposes of computing the tax for any calendar year.’

      (16) Paragraph (1) of section 6018(a) is amended by striking ‘$600,000’ and inserting ‘the exemption amount under section 2052 for the calendar year which includes the date of death’.

      (17) Subparagraph (A) of section 6601(j)(2) is amended to read as follows:

        ‘(A) the amount of the tax which would be imposed by chapter 11 on an amount of taxable estate equal to the excess of $1,000,000 over the exemption amount allowable under section 2052, or’.

      (18) The table of sections for part II of subchapter A of chapter 11 is amended by striking the item relating to section 2010.

      (19) The table of sections for subchapter A of chapter 12 is amended by striking the item relating to section 2505.

    (d) EFFECTIVE DATE- The amendments made by this section--

      (1) insofar as they relate to the tax imposed by chapter 11 of the Internal Revenue Code of 1986, shall apply to estates of decedents dying after December 31, 1997, and

      (2) insofar as they relate to the tax imposed by chapter 12 of such Code, shall apply to gifts made after December 31, 1997.

TITLE II--ADDITIONAL RELIEF FOR FAMILY-OWNED BUSINESSES AND FARMS

SEC. 201. FAMILY-OWNED BUSINESS EXCLUSION.

    (a) IN GENERAL- Part III of subchapter A of chapter 11 (relating to gross estate) is amended by inserting after section 2033 the following new section:

‘SEC. 2033A. FAMILY-OWNED BUSINESS 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 business interests of the decedent otherwise includible in the estate, or

      ‘(2) the sum of--

        ‘(A) $1,500,000, plus

        ‘(B) 50 percent of the excess (if any) of the adjusted value of such interests over $1,500,000.

    ‘(b) ESTATES TO WHICH SECTION APPLIES- This section shall apply to an estate if--

      ‘(1) the decedent was (at the date of the decedent’s death) a citizen or resident of the United States,

      ‘(2) the sum of--

        ‘(A) the adjusted value of the qualified family-owned business interests which--

          ‘(i) are included in determining the value of the gross estate (without regard to this section), and

          ‘(ii) are acquired by a qualified heir from, or passed to a qualified heir from, the decedent (within the meaning of section 2032A(e)(9)), plus

        ‘(B) the amount of the adjusted taxable gifts of such interests from the decedent to members of the decedent’s family taken into account under subsection 2001(b)(1)(B),

      exceeds 50 percent of the adjusted gross estate, and

      ‘(3) 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--

        ‘(A) such interests were owned by the decedent or a member of the decedent’s family, and

        ‘(B) there was active management (within the meaning of section 2032A(e)(12)) by the decedent or a member of the decedent’s family in the operation of the business to which such interests relate.

    ‘(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 section 2053(a)(4), and

      ‘(2) increased by the sum of--

        ‘(A) the amount taken into account under subsection (b)(2)(B), plus

        ‘(B) the amount of other gifts from the decedent to the decedent’s spouse (at the time of the gift) within 10 years of the date of the decedent’s death, plus

        ‘(C) the amount of other gifts (not included under subparagraph (A) or (B)) from the decedent within 3 years of such date.

    ‘(d) ADJUSTED VALUE OF THE QUALIFIED FAMILY-OWNED BUSINESS INTERESTS- For purposes of this section, the adjusted value of any qualified family-owned business 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 section 2053(a)(4), 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 BUSINESS INTEREST-

      ‘(1) IN GENERAL- For purposes of this section, the term ‘qualified family-owned business interest’ means--

        ‘(A) an interest as a proprietor in a trade or business carried on as a proprietorship, or

        ‘(B) an interest as a partner in a partnership, or stock in a corporation, carrying on a trade or business, if--

          ‘(i) at least--

            ‘(I) 50 percent of such partnership or corporation is owned (directly or indirectly) by the decedent or members of the decedent’s family,

            ‘(II) 70 percent of such partnership or corporation is so owned by 2 families (including the decedent’s family), or

            ‘(III) 90 percent of such partnership or corporation is so owned by 3 families (including the decedent’s family), and

          ‘(ii) at least 30 percent of such partnership or corporation is so owned by each family described in subclause (II) or (III) of clause (i).

      ‘(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--

          ‘(i) an entity which had, or

          ‘(ii) an entity which is a member of a controlled group (as defined in section 267(f)(1)) which had,

        readily tradable stock or debt on an established securities market or secondary market (as defined by the Secretary) 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)), and

        ‘(D) that portion of an interest in a trade or business that is attributable to cash or marketable securities, or both, in excess of the reasonably expected day-to-day working capital needs of such trade or business.

      ‘(3) OWNERSHIP RULES-

        ‘(A) INDIRECT OWNERSHIP- For purposes of determining indirect ownership under paragraph (1), rules similar to the rules of paragraphs (2) and (3) of section 447(e) shall apply.

        ‘(B) TIERED ENTITIES- For purposes of this section, if--

          ‘(i) a qualified family-owned business holds an interest in another trade or business, and

          ‘(ii) such interest would be a qualified family-owned business interest if held directly by the family (or families) holding interests in the qualified family-owned business meeting the requirements of paragraph (1)(B),

        then the value of the qualified family-owned business shall include the portion attributable to the interest in the other trade or business.

    ‘(f) TAX TREATMENT OF FAILURE TO ACTIVELY MANAGE 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 qualified heir ceases to use for the qualified use (within the meaning of section 2032A(c)(6)(B), determined by substituting ‘active management’ for ‘material participation’ each place it appears) the qualified family-owned business interest which was acquired (or passed) from the decedent, or

        ‘(B) the qualified heir disposes of any portion of a qualified family-owned business 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)).

      ‘(2) ADDITIONAL ESTATE TAX- The amount of the additional estate tax imposed by paragraph (1) shall be equal to--

        ‘(A) the applicable percentage of adjusted tax difference attributable to the qualified family-owned business interest (as determined under rules similar to the rules of section 2032A(c)(2)(B)), plus

        ‘(B) interest on the amount determined under subparagraph (A) at the annual rate of 4 percent 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.

      ‘(3) APPLICABLE PERCENTAGE- For purposes of paragraph (2), the term ‘applicable percentage’ means the percentage determined in accordance with the following table for the year (in the 10-year period referred to in paragraph (1)) in which the recapture event occurs:

In the case of the:

--The applicable percentage is:

First 5 such years

--100 percent

6th such year

--50 percent

7th such year

--40 percent

8th such year

--30 percent

9th such year

--20 percent

10th such year

--10 percent.

    ‘(g) 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 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 447(e)(1).

      ‘(3) INFLATION ADJUSTMENT- In the case of estates of decedents dying in a calendar year after 1997, the $1,500,000 amount contained in subsection (a) shall be increased each place it appears by an amount equal to--

        ‘(A) $1,500,000, multiplied by

        ‘(B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting ‘calendar year 1996’ for ‘calendar year 1992’ in subparagraph (B) thereof.

      If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000.

      ‘(4) 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 treatment 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).’

    (b) CLERICAL AMENDMENT- The table of sections for part III of subchapter A of chapter 11 is amended by inserting after the item relating to section 2033 the following new item:

‘Sec. 2033A. Family-owned business exclusion.’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to estates of decedents dying after December 31, 1996.

SEC. 202. INFLATION ADJUSTMENT OF MAXIMUM BENEFIT UNDER SPECIAL ESTATE TAX VALUATION RULES FOR CERTAIN FARM, ETC., REAL PROPERTY.

    (a) IN GENERAL- Paragraph (2) of section 2032A(a) (relating to limitation on aggregate reduction in fair market value) is amended to read as follows:

      ‘(2) LIMITATION ON AGGREGATE REDUCTION IN FAIR MARKET VALUE-

        ‘(A) IN GENERAL- The aggregate decrease in the value of qualified real property taken into account for purposes of this chapter which results from the application of paragraph (1) with respect to any decedent shall not exceed $750,000.

        ‘(B) INFLATION ADJUSTMENT- In the case of estates of decedents dying in a calendar year after 1996, the $750,000 amount set forth in subparagraph (A) shall be increased by an amount equal to--

          ‘(i) $750,000, multiplied by

          ‘(ii) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting ‘calendar year 1995’ for ‘calendar year 1992’ in subparagraph (B) thereof.

        Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $1,000.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to estates of decedents dying after December 31, 1996.

TITLE III--BENEFITS FOR CONSERVATION EASEMENTS

SEC. 301. TREATMENT OF LAND SUBJECT TO A QUALIFIED CONSERVATION EASEMENT.

    (a) ESTATE TAX WITH RESPECT TO LAND SUBJECT TO A QUALIFIED CONSERVATION EASEMENT- 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) 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, is--

            ‘(I) a metropolitan area (as defined by the Office of Management and Budget), or

            ‘(II) 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),

          ‘(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) (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. 302. 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 (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. 303. QUALIFIED CONSERVATION CONTRIBUTION IS NOT A DISPOSITION.

    (a) QUALIFIED CONSERVATION CONTRIBUTION IS NOT A DISPOSITION- Subsection (c) of section 2032A (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 (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. 304. QUALIFIED CONSERVATION CONTRIBUTION WHERE SURFACE AND MINERAL RIGHTS ARE SEPARATED.

    (a) IN GENERAL- Section 170(h)(5)(B)(ii) (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.

TITLE IV--BENEFITS FOR HISTORIC PRESERVATION

SEC. 401. EXCLUSION FROM ESTATE TAX FOR HISTORIC PROPERTY SUBJECT TO PRESERVATION EASEMENT.

    (a) IN GENERAL- Part IV of subchapter A of chapter 11 (relating to taxable estate) is amended by adding at the end the following new section:

‘SEC. 2057. QUALIFIED HISTORIC PROPERTY.

    ‘(a) GENERAL RULE- For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate an amount equal to the value of any qualified historic property included in the gross estate.

    ‘(b) DEFINITIONS- For purposes of this section--

      ‘(1) QUALIFIED HISTORIC PROPERTY-

        ‘(A) IN GENERAL- The term ‘qualified historic property’ means any historic property if--

          ‘(i) on or before the date on which the return of the tax imposed by section 2001 is filed, a qualified real property interest described in section 170(h)(2)(C) in such property is held by a qualified organization for the purpose described in section 170(h)(4)(A)(iv), and

          ‘(ii) such property is covered by an agreement meeting the requirements of subsection (c) which is entered into on or before such date.

        Clause (i) shall not be construed to require that the property be held for the purpose described therein for longer than the 20-year period referred to in subsection (c)(1)(D).

        ‘(B) TREATMENT OF PERSONAL PROPERTY- Such term includes personal property included within, or associated with, qualified historic property (as defined in paragraph (1)) if such personal property--

          ‘(i) is held by the decedent holding such qualified historic property,

          ‘(ii) has been so included within, or associated with, such qualified historic property throughout the 10-year period ending on the date of the decedent’s death, and

          ‘(iii) is covered by the agreement referred to in subparagraph (A)(ii) which covers such qualified historic property.

      ‘(2) HISTORIC PROPERTY- The term ‘historic property’ means--

        ‘(A) any building (and its structural components)--

          ‘(i) which is designated as a National Historic Landmark under section 101 of the National Historic Preservation Act throughout the 10-year period ending on the date of the decedent’s death,

          ‘(ii) which was owned by the decedent or a member of the decedent’s family (as defined in section 2032A(e)(2)) throughout such 10-year period, and

          ‘(iii) which was originally used for residential purposes, and

        ‘(B) any other real property to the extent reasonably necessary for public view and visitation of the property described in subparagraph (A).

      ‘(3) QUALIFIED ORGANIZATION- The term ‘qualified organization’ has the meaning given to such term by section 170(h)(3).

      ‘(4) TREATMENT OF QUALIFIED HISTORIC PROPERTY HELD BY A CORPORATION- In the case of a corporation all of the stock in which was held on the date of the decedent’s death by the decedent or members of the decedent’s family (as defined in section 2032A(e)(2))--

        ‘(A) stock in such corporation shall be treated for purposes of this section as qualified historic property to the extent that the value of such stock is attributable to qualified historic property held by such corporation, but

        ‘(B) the requirements of subsection (c) shall be met only if each member of the decedent’s family holding such stock on such date sign the agreement referred to in subsection (c).

    ‘(c) REQUIREMENTS FOR AGREEMENT-

      ‘(1) IN GENERAL- For purposes of subsection (b)(1)(A)(ii), an agreement meets the requirements of this subsection if--

        ‘(A) such agreement is a written agreement signed by each person in being who has an interest (whether or not in possession) in the historic property (other than the qualified organization),

        ‘(B) such agreement is entered into with a State historic preservation agency (or similar State agency) and filed with the Secretary with the return of the tax imposed by section 2001,

        ‘(C) such agreement provides that the only activities carried on at the historic property are activities which are substantially related (aside from the need for income or funds or the use made of the profits derived) to--

          ‘(i) the public view and visitation of such property and the property described in the last sentence of subsection (b)(1) with respect to such property), and

          ‘(ii) the maintenance and preservation of such property and surrounding areas for such public view and visitation,

        ‘(D) such agreement provides that the historic property will be open to the public on a substantial and regular basis for a period of at least 20 years beginning on the date on which the return of the tax imposed by section 2001 is filed, and

        ‘(E) such agreement provides that any admission fees (if any) shall bear a reasonable relationship to admission fees for other comparable tourist sites and shall be approved by such State historic preservation agency (or similar State agency).

      ‘(2) TREATMENT OF FOOD, LODGING, AND MEETING FACILITIES PROVIDED TO GENERAL PUBLIC- The regular carrying on--

        ‘(A) a trade or business of providing lodging shall be treated as not substantially related for purposes of paragraph (1)(C),

        ‘(B) a trade or business of providing food shall be treated as not substantially related for purposes of paragraph (1)(C) unless--

          ‘(i) such food is only provided to individuals who pay the generally applicable admission fees (if any) for admission to the property by individuals to whom no food is provided, and

          ‘(ii) only an insubstantial portion of the structures on the historic property is devoted to the provision of such food, and

        ‘(C) a trade or business of providing facilities for meetings or events shall be treated as not substantially related for purposes of paragraph (1)(C) unless all of the net proceeds from such trade or business are used for maintenance or preservation of the historic property.

    ‘(d) TAX TREATMENT OF DISPOSITIONS AND FAILURE TO COMPLY WITH AGREEMENT-

      ‘(1) IMPOSITION OF ADDITIONAL ESTATE TAX- If, during the 20-year period referred to in subsection (c)(1)(D)--

        ‘(A) any person signing the written agreement referred to in subsection (c) disposes of any interest in the qualified historic property, or

        ‘(B) there is a violation of any provision of such agreement (as determined under regulations prescribed by the Secretary),

      then there is hereby imposed an additional estate tax.

      ‘(2) EXCEPTION FOR CERTAIN TRANSFEREES WHO AGREE TO BE BOUND BY AGREEMENT- No tax shall be imposed under paragraph (1) by reason of any disposition if the person acquiring the property--

        ‘(A) is a qualified organization or is a member of the family (as defined in section 2032A(e)(2)) of the person disposing of such property, and

        ‘(B) agrees to be bound by the agreement referred to in subsection (b)(4) and to be liable for any tax under this subsection in the same manner as the person disposing of such property.

      ‘(3) AMOUNT OF ADDITIONAL TAX-

        ‘(A) IN GENERAL- The amount of the additional tax imposed by paragraph (1) with respect to any property shall be an amount equal to the applicable percentage of the excess of--

          ‘(i) what would (but for subsection (a)) have been the tax imposed by section 2001 (reduced by the credits allowable), over

          ‘(ii) the tax imposed by section 2001 (as so reduced).

        ‘(B) APPLICABLE PERCENTAGE- For purposes of subparagraph (A), the applicable percentage is the percentage determined in accordance with the following table for the year (of 20-year period referred to in subsection (c)(1)(D)) in which the event described in paragraph (1) occurs:

‘If the event

-- The applicable

occurs during:

--percentage is:

The 1st 12 years of such 20-year period

--100 percent

The 13th or 14th year of such period

--80 percent

The 15th or 16th year of such period

--60 percent

The 17th or 18th year of such period

--40 percent

The 19th or 20th year of such period

--20 percent.

      ‘(4) DUE DATE- The additional tax imposed by this subsection shall be due and payable on the day which is 6 months after the date of the disposition or violation referred to in paragraph (1).

      ‘(5) LIABILITY FOR TAX- Any person signing the agreement referred to in subsection (c) (other than the executor) shall be personally liable for the additional tax imposed by this subsection. If more than 1 person is liable under this subsection, all such persons shall be jointly and severally liable.

      ‘(6) CERTAIN OTHER RULES TO APPLY- Rules similar to the rules of sections 1016(c), 2013(f), and 2032A(f) shall apply for purposes of this subsection.

    ‘(e) OTHER SPECIAL RULES-

      ‘(1) COORDINATION WITH DEDUCTION FOR TRANSFER OF EASEMENT- Section 2055(f) shall not apply to any interest referred to therein with respect to property for which a deduction is allowed under subsection (a).

      ‘(2) DENIAL OF DEDUCTION OF INDEBTEDNESS ON EXCLUDED PROPERTY- No deduction shall be allowed under section 2053 for indebtedness in respect of property the value of which is deducted under subsection (a).

      ‘(3) SUBMISSION OF ANNUAL INVENTORIES OF PERSONAL PROPERTY- The Secretary shall require the submission to the Secretary of such inventories of personal property which is qualified historic property as the Secretary determines are necessary for purposes of this section.’

    (b) TECHNICAL AMENDMENTS-

      (1) Subsection (a) of section 1014 of such Code 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) in the case of property the value of which was deducted under section 2057(a), the adjusted basis of such property in the hands of the decedent immediately before the death of the decedent.’

      (2) Subparagraph (A) of section 2056A(b)(10) of such Code is amended by inserting ‘2057,’ after ‘2056,’.

      (3) The table of sections for part IV of subchapter A of chapter 11 of such Code is amended by adding at the end the following new item:

‘Sec. 2057. Qualified historic property.’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply with respect to the estates of decedents dying after the date of the enactment of this Act.