National Family Enterprise Preservation Act of 1995

Summary: National Family Enterprise Preservation Act of 1995 - Amends the Internal Revenue Code to increase the unified estate and gift tax credit by creating:  (1) an additional estate tax credit measured by the value of inherited family enterprise property (up to $121,800); (2) an additional gift tax credit equal to the value of gifts of family enterprise property (up to $121,800) minus the sum value of such tax credits for preceding calendar periods; and (3) an additional gift tax exclusion equal to the value of gifts of family enterprise property (up to $10,000). 
Includes in a decedent's estate the value of family enterprise property, reduced by 50 percent or by $1 million, whichever is less. 
Defines family enterprise property as an interest in real or personal property used for farming, business, or any other trade that is at least 80 percent owned by either:  (1) five or fewer individuals who have not formed a limited partnership; or (2) members of the same family. 
Imposes an additional estate tax on a taxpayer who:  (1) inherits family enterprise property; (2) qualifies for an estate tax credit; and (3) disposes of that property within ten years of the decedent's death, and before the death of another individual with an interest in the property.  Defines the additional estate tax as past estate tax liability attributable to the taxpayer for interest in the family enterprise property (for which he received an estate tax credit) reduced by five percent for every year after the decedent's death that the taxpayer participated in the management of the family enterprise property. 
Increases from $750,000 to $1 million the amount of aggregate reduction permitted in the fair market value of certain farm, etc. real property taken into account for determining the gross estate.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``National Family Enterprise 
Preservation Act of 1995''.

SEC. 2. INCREASE IN UNIFIED ESTATE AND GIFT TAX CREDITS FOR FAMILY 
              ENTERPRISES.

    (a) Estate Tax.--Section 2010 of the Internal Revenue Code of 1986 
(relating to unified credit against estate tax) is amended by 
redesignating subsections (b) and (c) as subsections (c) and (d), 
respectively, and by inserting after subsection (a) the following new 
subsection:
    ``(b) Additional Credit For Family Enterprises.--The amount of the 
credit allowable under subsection (a) shall be increased by an amount 
equal to the value of any family enterprise property included in the 
decedent's gross estate under section 2040A(a), to the extent such 
value does not exceed $121,800.''.
    (b) Gift Tax.--Section 2505 of the Internal Revenue Code of 1986 
(relating to unified credit against gift tax) is amended by 
redesignating subsections (b) and (c) as subsections (c) and (d), 
respectively, and by inserting after subsection (a) the following new 
subsection:
    ``(b) Additional Credit For Family Enterprises.--The amount of the 
credit allowable under subsection (a) for each calendar year shall be 
increased by an amount equal to--
            ``(1) the value of gifts of family enterprise property (as 
        defined in section 2040A(b)(1)), to the extent such value does 
        not exceed $121,800, reduced by
            ``(2) the sum of the amounts allowable as a credit to the 
        individual under this subsection for all preceding calendar 
        periods.''.
    (c) Effective Dates.--
            (1) Estate tax credit.--The amendments made by subsection 
        (a) shall apply to the estates of decedents dying after 
        December 31, 1995.
            (2) Gift tax credit.--The amendments made by subsection (b) 
        shall apply to gifts made after December 31, 1995.

SEC. 3. INCREASE IN ANNUAL GIFT TAX EXCLUSION.

    (a) In General.--Section 2503 of the Internal Revenue Code of 1986 
(relating to taxable gifts) is amended by redesignating subsection (c) 
as subsection (d), and by inserting after subsection (b) the following 
new subsection:
    ``(c) Additional Exclusions From Gifts.--The amount of the 
exclusion allowable under subsection (b) during a calendar year shall 
be increased by an amount equal to the value of gifts of family 
enterprise property (as defined in section 2040A(b)(1)) made during 
such year, to the extent such value does not exceed $10,000.''.
    (b) Effective date.--The amendments made by this section shall 
apply to gifts made after December 31, 1995.

SEC. 4. FAMILY ENTERPRISE PROPERTY.

    (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 2040 the following new section:

``SEC. 2040A. FAMILY ENTERPRISE PROPERTY.

    ``(a) General Rule.--The value included in the decedent's gross 
estate with respect to family enterprise property by reason of this 
section shall be--
            ``(1) the value of such property, reduced by
            ``(2) the lesser of--
                    ``(A) 50 percent of the value of such property, or
                    ``(B) $1,000,000.
    ``(b) Family Enterprise Property.--
            ``(1) In general.--For purposes of this section, the term 
        ``family enterprise property'' means any interest in real or 
        personal property which is devoted to use as a farm or used for 
        farming purposes (within the meaning of paragraphs (4) and (5) 
        of section 2032A(e)) or is used in any other trade or business, 
        if at least 80 percent of the ownership interest in such farm 
        or other trade or business is held--
                    ``(A) by 5 or fewer individuals, or
                    ``(B) by individuals who are members of the same 
                family (within the meaning of section 2032A(e)(2)).
            ``(2) Limited partnership interests excluded.--An interest 
        in a limited partnership (other than a limited partnership 
        composed solely of individuals described in paragraph (1)(B)) 
        shall in no event be treated as family enterprise property.
    ``(c) Tax Treatment of Dispositions and Failure To Use for 
Qualifying Use.--
            ``(1) Imposition of additional estate tax.--With respect to 
        family enterprise property inherited from the decedent, if 
        within 10 years after the decedent's death and before the death 
        of any individual described in subsection (b)(1)--
                    ``(A) such individual disposes of any interest in 
                such property (other than by a disposition to a member 
                of the individual's family), or
                    ``(B) such individual or a member of the 
                individual's family ceases to participate in the active 
                management of such property,
        then there is hereby imposed an additional estate tax.
            ``(2) Amount of additional tax.--The amount of the 
        additional tax imposed by paragraph (1) with respect to any 
        interest in family enterprise property shall be the amount 
        equal to the excess of the estate tax liability attributable to 
        such interest (determined without regard to subsection (a)) 
        over the estate tax liability, reduced by 5 percent for each 
        year following the date of the decedent's death in which the 
        individual described in subsection (b)(1) or a member of the 
        individual's family participated in the active management of 
        such family enterprise property.
            ``(3) Active management.--For purposes of this subsection, 
        the term ``active management'' means the making of the 
        management decisions of a business other than the daily 
        operating decisions.
    ``(d) Additional Rules.--For purposes of this section, rules 
similar to the rules under paragraphs (3), (4), and (5) of section 
2032A(c), paragraphs (7), (8), (9), (10), (11), and (12) of section 
2032(e), and subsections (f), (g), (h), and (i) of section 2032A shall 
apply.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter A of chapter 11 of the Internal Revenue Code of 1986 is 
amended by inserting after the item relating to section 2040 the 
following new item:

                              ``Sec. 2040A. Family enterprise 
                                        property.''.
    (c) Effective date.--The amendments made by this section shall 
apply to the estates of decedents dying after December 31, 1995.

SEC. 5. VALUATION OF CERTAIN FARM, ETC., REAL PROPERTY.

    (a) In General.--Section 2032A(a)(2) of the Internal Revenue Code 
of 1986 (relating to limitation on aggregate reduction in fair market 
value) is amended by striking ``$750,000'' and inserting 
``$1,000,000''.
    (b) Effective Date.--The amendments made by this section shall 
apply to the estates of decedents dying after December 31, 1995.