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Text of the Family Farm and Small Business Tax Relief Act of 2012

This bill was introduced on August 1, 2012, in a previous session of Congress, but was not enacted. The text of the bill below is as of Aug 1, 2012 (Introduced).

Source: GPO

I

112th CONGRESS

2d Session

H. R. 6271

IN THE HOUSE OF REPRESENTATIVES

August 1, 2012

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 certain farmland and family-owned business interests from the value of the gross estate of decedents.

1.

Short title

This Act may be cited as the Family Farm and Small Business Tax Relief Act of 2012.

2.

Exclusion from gross estate of certain farmland and family-owned business interests

(a)

In general

Part III of subchapter A of chapter 11 of the Internal Revenue Code of 1986 (relating to gross estate) is amended by inserting after section 2033 the following new section:

2033A.

Certain farmland and family-owned business interests

(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 adjusted value of—

(1)

qualified farmland, and

(2)

the qualified family-owned business interests,

of the decedent otherwise includible in the estate.
(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 executor elects the application of this section and files the agreement referred to in subsection (h),

(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)

the qualified farmland or the qualified family-owned business interest, or both, as the case may be, was owned by the decedent or a member of the decedent’s family, and

(B)

there was material participation (within the meaning of section 2032A(e)(6)) by the decedent or a member of the decedent’s family in the operation of the qualified farmland or the business to which such interest relates.

(c)

Qualified family-Owned business interests

For purposes of this section—

(1)

Adjusted value

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—

(A)

any amount deductible under paragraph (3) or (4) of section 2053(a), over

(B)

the sum of—

(i)

any indebtedness on any qualified residence of the decedent the interest on which is deductible under section 163(h)(3), plus

(ii)

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

(iii)

any indebtedness not described in subparagraph (A) or (B), to the extent such indebtedness does not exceed $10,000.

(2)

Qualified family-owned business interest defined

The term qualified family-owned business interest has the meaning given such term by section 2057(e).

(d)

Qualified farmland

For purposes of this section, the term qualified farmland means any real property—

(1)

which is located in the United States,

(2)

which is used as a farm for farming purposes (as defined in section 2032A(e)), and

(3)

which was acquired from or passed from the decedent to a qualified heir of the decedent which, on the date of the decedent’s death, was being so used by the decedent or a member of the decedent’s family.

(e)

Tax treatment of failure to materially participate in 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)

in the case of a qualified family-owned business interest—

(i)

the material participation requirements of subsection (b)(3)(B) are not met with respect to the qualified family-owned business interest which was acquired (or passed) from the decedent,

(ii)

the principal place of business of a trade or business of the qualified family-owned business interest ceases to be located in the United States, or

(iii)

the qualified heir disposes of any interest in the qualified family-owned business interest, other than by a disposition to a member of the qualified heir’s family,

(B)

in the case of qualified farmland—

(i)

the qualified heir ceases to use the real property which was acquired (or passed) from the decedent as a farm for farming purposes, or

(ii)

the qualified heir disposes of any interest in qualified farmland, other than by a disposition to a member of the qualified heir’s family, or

(C)
(i)

the qualified heir loses United States citizenship (within the meaning of section 877) or with respect to whom an event described in subparagraph (A) or (B) of section 877(e)(1) occurs, and

(ii)

such heir does not comply with the rules similar to the rules of section 2057(g) (relating to security requirements for noncitizen qualified heirs).

(2)

Additional estate tax

(A)

In general

The amount of the additional estate tax imposed by paragraph (1) shall be equal to—

(i)

the applicable percentage of the 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

(ii)

interest on the amount determined under clause (i) at the underpayment rate established under section 6621 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.

(B)

Applicable percentage

For purposes of this paragraph, the applicable percentage shall be determined under the following table:

If the event described in
 paragraph (1) occurs in
 the following year of
 material participation:


The applicable
percentage is:
1 through 6100
780
860
940
1020.
(C)

Adjusted tax difference

For purposes of subparagraph (A)—

(i)

In general

The adjusted tax difference attributable to a qualified family-owned business interest is the amount which bears the same ratio to the adjusted tax difference with respect to the estate (determined under clause (ii)) as the value of such interest bears to the value of all qualified family-owned business interests described in subsection (b)(2).

(ii)

Adjusted tax difference with respect to the estate

For purposes of clause (i), the term adjusted tax difference with respect to the estate means the excess of what would have been the estate tax liability but for the election under this section over the estate tax liability. For purposes of this clause, the term estate tax liability means the tax imposed by section 2001 reduced by the credits allowable against such tax.

(f)

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 2032A(e)(2).

(3)

Material participation

The term material participation has the meaning given to such term by section 2032A(e)(6).

(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)(6) (relating to cessation of qualified use).

(H)

Section 2032A(c)(7) (relating to no tax if use begins within 2 years; active management by eligible qualified heir treated as material participation).

(I)

Section 2032A(c)(8) (relating to qualified conservation contribution is not a disposition).

(J)

Paragraphs (1) and (3) of section 2032A(d) (relating to election; agreement).

(K)

Section 2032A(e)(10) (relating to community property).

(L)

Section 2032A(e)(14) (relating to treatment of replacement property acquired in section 1031 or 1033 transactions).

(M)

Section 2032A(f) (relating to statute of limitations).

(N)

Section 2032A(g) (relating to application of this section and section 6324B to interests in partnerships, corporations, and trusts).

(O)

Section 2032A(h) (relating to special rules for involuntary conversions of qualified real property).

(P)

Section 2032A(i) (relating to exchanges of qualified real property).

(Q)

Section 6166(b)(3) (relating to farmhouses and certain other structures taken into account).

(R)

Subparagraphs (B), (C), and (D) of section 6166(g)(1) (relating to acceleration of payment).

(S)

Section 6324B (relating to special lien for additional estate tax).

.

(b)

Conforming amendment

Section 2032A of such Code is amended by adding at the end the following:

(e)

Termination

This section shall not apply with respect to decedents dying after December 31, 2012.

.

(c)

Clerical amendment

The table of sections for part III of subchapter A of chapter 11 of such Code is amended by inserting after the item relating to section 2033 the following new item:

Sec. 2033A. Family-owned business exclusion.

.

(d)

Effective date

The amendments made by this section shall apply to estates of decedents dying after December 31, 2012.

3.

Estate Tax Made Permanent

(a)

In general

Title III of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 is amended by striking section 304.

(b)

Conforming amendment

Section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to title V of such Act.

(c)

Effective date

The amendment made by subsection (a) shall apply to estates of decedents dying, gifts made, and generation skipping transfers after December 31, 2012.